The Economic Crime and Corporate Transparency Act 2023 (“EECA”) has received a lot of attention, and rightly so. The statute ambitiously aims to “reform the role of Companies House … strengthen our business environment, support our national security and disrupt economic crime, while delivering a more reliable companies register to underpin business activity.”
One important feature of the EECA is the introduction of mandatory identity verification procedures, which will soon apply to all UK companies. This is a welcome development, as fraudsters routinely use registered companies to conceal their true identities.
What’s the current issue?
For many years, commentators have criticised the inefficacy of Companies House. Jokesters have registered companies using fake names such as “Darth Vader” and “Santa Claus” and, more concerningly, fraudsters have used fake identities to create companies through which they perpetrate fraud.
In November 2022, the director of UK Finance labelled the organisation as “dysfunctional” and said that it helped facilitate fraud. Moreover, Duncan Hames, a former MP who is now director of policy at Transparency International UK, recently said that “Britain’s lax corporate law has provided secrecy for criminals and kleptocrats around the world for far too long”.
The EECA seeks to fix these issues, introducing the “biggest changes to Companies House since corporate registrations were established in 1844”.
Identification Requirements
Whilst a specific date has not yet been announced, Companies House says that it will commence mandatory identity verification in Autumn 2025. There will be a 12-month transitional period for existing directors, persons with significant control, and relevant legal entities.
Once fully implemented, the following individuals will need to verify their identity:
- Directors: When incorporating a new company, all directors will need to verify their identity before the incorporation application is delivered to Companies House. After incorporation, a newly appointed director must verify their identity as soon as possible, and before their appointment is notified to Companies House.
- Persons with significant control (“PSCs”): A PSC will need to be verified within 14-days of registering with Companies House.
- Individuals filing documents: Any persons filing documents at Companies House will need to verify their identity.
Individuals will be able to verify their identity directly with Companies House or through an Authorised Corporate Service Provider.
Failure to comply with the mandatory identity verification requirements will constitute a criminal offence.
A Positive Development
At Edmonds Marshall McMahon, we frequently come across fraudsters who use registered companies to open bank accounts and receive funds obtained through forward. In the campaign against fraud, no single measure will ever be a silver bullet. Nevertheless, the proposed mandatory identity verification requirements will be an important tool and serves as a significant step forward in the fight against fraud.
