The Economic Crime and Corporate Transparency Bill 2022 (the ‘Bill’) introduces an identity verification requirement for all new and existing company directors, People with Significant Control (‘PSC’), and those delivering documents to Companies House.
The proposed changes, which are towards the final stages of parliamentary review, represent a significant change in the way that Companies House operates. We take a closer look at the new rules, particularly director verification, based on the available information and our experience with similar legislation to see what it may likely mean for those that interact with the Register.
Elemental acts as a UK Regulated Agent.
Find out more about our Register of Overseas Entities service.
Who do the changes affect?
The proposed changes affect both directors of new and of existing companies and other legal entities including LLPs, limited partnerships, and directors of overseas companies registered with Companies House.
Why is this change being introduced?
A downside of the simplicity of incorporating in the UK, is that the lack of checks means the register is open to abuse. This can be illustrated using this example from the Financial Times: “One notable company officer in the UK, now resigned, is called Jesus, Holy Christ. He gave his residence as Heaven, nationality as Angelic and occupation as creator.” Companies House clearly states on the company register search webpage that it does not verify the accuracy of the information filed.
Director verification is one important step in not only tackling economic crime but also making the register more useful for those that rely on the accuracy of information for decision-making.
When does verification need to happen?
Who can verify?
A verification statement can be delivered on behalf of a director by an Authorised Corporate Services Provider (ACSP). ACSP is a new term under the Bill, and we have produced a separate guide here explaining the term in more detail. Alternatively, an individual can directly verify their identity with Companies House. Individuals who do not wish to directly verify their identity with Companies House must appoint and authorise an ACSP to submit a verification statement on their behalf.
How does verification work?
An identity is deemed to be verified once a verification statement is delivered to Companies House.
The precise procedure for verifying an individual, including the evidence required and records to be kept are still yet to be published. However, there is some published information from the government available and we can look to precedent set by the Economic Crime (Transparency and Enforcement) Act 2022, which led to the introduction of the UK Register of Overseas Entities (‘ROE’), a requirement for certain individuals owning UK land to register with Companies House.
For the ROE, the verification of individual registrable beneficial owners (‘RBO’) included a liveness check that involved an ROE verification officer checking the likeness of the person against their identity documents, either visually or by asking the RBO to take a photo of themselves. It would not be surprising for ACSPs to be required to do something similar before a verification statement can be delivered to Companies House.
What about those who cannot or do not wish to upload their image?
The guidance states that alternative methods will be available for individuals without photographic ID and those who cannot use the digital identity verification system.
In our experience as a verification agent for the ROE, there are very few situations where it can be successfully demonstrated that it is not possible for individuals to use a digital identity verification system. Simply not wishing to have a photograph taken would not be a valid ground for exemption.
How many times will verification need to happen?
Once verification is complete, an individual’s identity is linked to their primary identity document, and they may be given a unique identifier. Identity is expected to be a one-off requirement and would only need to be reviewed in specific circumstances, for example where an individual changes their name.
What happens if verification is not completed?
Failing to meet verifications would constitute an offence, punishable with imprisonment or a fine, or both. In addition, Companies House would be granted discretion to take certain actions for non-compliance. Although such actions have not yet been set out in regulations, such actions may trigger compulsory strike-off action.
Verification statements may form a part of the KYC/due diligence checks professional service providers undertake when onboarding clients. So, where verification statements have not been submitted, there may be issues with the company obtaining the required service from professionals.
What should you do now?
Although the Bill is still under review and Companies House are still building systems, we are actively looking at our processes to understand how we can help our clients and partner firms once the changes go live. If any of our clients are concerned about the changes, please get in touch. Although the focus of this paper has been on the verification of company directors, we anticipate the biggest challenges for companies to be seen with PSC identity verification.
How Elemental can help
Elemental is an industry leader in supporting law firms and their clients with economic crime compliance. Elemental was the number 1 UK Regulated Agent during the Register of Overseas Entities transition period having completed more filings than any other provider (Source: Companies House).
The firm has written on the subject for Practical Law, LexisNexis, and Companies House. We will act as an Authorised Corporate Service Provider (ACSP) and will be supporting new and existing clients and partner firms with the new verification and filing requirements once the Bill becomes law. Please contact us if you have any questions.