Companies House reform: The impact on fraud

The Economic Crime and Corporate Transparency Act 2023 (“ECCTA“), which received Royal Assent on 26 October 2023, introduced a series of measures with the aim of tackling economic crime and improving corporate transparency in the UK.In addition to (a) the Failure to Prevent Fraud offence (s199 ECCTA) (the “FTP Offence”) and (b) the attribution of criminal liability to organisations for the acts of their “Senior Managers” (s196 ECCTA) (see articles here and here), ECCTA will reform the role of Companies House, so as to allow it to play a greater role in disrupting economic crime and supporting economic growth.In its published policy paper, “ECCTA: outline transition plan for Companies House” (the “Policy Paper“), Companies House provides an update on the changes being made in response to the legislative developments, including the current intended timeline for the implementation of these.In this article we look at the Policy Paper, the important changes that are coming in spring 2025 and consider how the reform of Companies House will assist in the fight against fraud.

The objectives

Through ECCTA, the government has provided a new framework for Companies House, underpinned by four statutory objectives designed to promote the integrity of registers (the “Objectives”):

1. Objective 1 is to ensure any person required to deliver a document to the registrar does so.
2. Objective 2 is to ensure that information contained in the register is accurate and that the register contains everything it ought to contain.
3. Objective 3 is to ensure that records kept by the registrar do not create false or misleading impressions to the public.
4. Objective 4 is to prevent companies from: i) carrying out unlawful activities; or ii) facilitating the carrying out by others of unlawful activities.

Seasonal changes

As with most political timetabling, policy makers prefer an elastic rather than strict time period. As such, the forthcoming changes are by reference to the seasons. By spring 2025 (now known to be 25 February 2025), Companies House is able to expedite the striking off of companies where the registrar has concluded the company has been formed on a false basis. Furthermore, Companies House will be able to:

• Carry out checks on Authorised Corporate Service Providers (“ACSPs“) to authorise them to carry out verification services. ACSPs will be required to be registered in the UK and be subject to the UK’s anti-money laundering regime.
• Allow individuals to voluntarily verify their identify.
• Receive and assess applications from individuals seeking to have residential addresses suppressed from public disclosure in certain circumstances.

By summer 2025, Companies House should be able to allow access on request to certain trust information on the Register of Overseas Entities. By autumn 2025, Companies House should be able to:

• Make identity verification a compulsory part of incorporation and new appointments for new directors and PSCs.
• Begin the 12-month transition phase to require more than 7 million existing directors and PSCs to verify their identity – the identity verification will happen as part of the annual confirmation statement filing.

By spring 2026, Companies House should be able to:

• Make identity verification of the presenters a compulsory part of filing any document.
• Require third party agents filing on behalf of companies to be registered as an ACSP.
• Reject documents delivered by disqualified directors as they will be prohibited from doing so, unless they are delivered by an ACSP for specified filings permitted by law.

By the end of 2026, Companies House should be able to:

• Require all limited partnerships to submit more information, providing greater transparency for users of the register.
• Complete the transition period for all individuals on the register requiring identity verification, and start compliance activity against those who have failed to verify their identity.
• Facilitate greater cross-checking of information and data between Companies House and other public and private sector bodies.

Following accounts reform, Companies House should be able to:

• Mandate software-only filing for all accounts.
• Remove the option for small companies and micro-businesses to file abridged accounts.
• Require all companies to file profit and loss accounts – improving the financial information on the register – and mandate small companies to also file their directors’ report.
• Require a company claiming an audit exemption to provide an enhanced statement from their directors on the balance sheet, specifying the exemption being claimed and confirming the company is eligible for it.
• Limit the number of times that a company can shorten its accounting reference period.

Following the implementation of restrictions on corporate directors, Companies House should be able to:

• Any corporate director of a company will be required to have an all-natural person board.
• All the directors of the corporate director will be required to verify their identity in order for the corporate director to be registered.
• Only UK corporate entities with legal personality will be capable of acting as a corporate director (the use of overseas companies acting as corporate directors in the UK will be prohibited).

Summary of recent changes

The forthcoming reforms to Companies House add to a suite of changes that have already taken place. In summary: From 4 March 2024, Companies House has been able to improve the quality of information on the register by:

• Querying and rejecting new information received in customer filings which are suspected to be wrong or fraudulent.
• Querying and rejecting company names that have been chosen to mislead customers, facilitate fraud, or give the false impression that the company is connected to a foreign government.
• Remove information that is believed to be inaccurate from the register, including names and addresses of individuals which have been used without their consent.
• Improving the accuracy and reliability of registered office addresses by introducing a new definition for an appropriate address. This prevents companies from using a Royal Mail PO Box and equivalent services offered by other parties (with Companies House having the powers to commence strike off measures against companies if they do not provide an appropriate address within a specified period).

Further, Companies House has been able to improve investigation, enforcement and data sharing by:

• Sharing more information with law enforcement agencies and regulatory bodies to help tackle money laundering, fraud and other criminality; and
• Undertaking greater analysis of information held, including comparison against other data sets obtained externally.

Companies House has also been able to better prevent disqualified directors from acting by rejecting documents notifying appointment of a new director to an existing company where the individual is a disqualified director. Further, from 4 March 2024, Companies House has been able to require companies to:

• Provide a registered email address so Companies House can verify information with a company directly.
• Confirm that the future activities of the company are lawful at the point of incorporation, and to confirm this every year on the confirmation statement.

From 1 May 2024, Companies House has been able to charge higher incorporation and annual fees​ to fund investigation and enforcement activities against those misusing the register. By Autumn 2024, Companies House has been able to issue financial penalties for any relevant offences under ECCTA and the Companies Act. For guidance on Companies House’s approach to financial penalties please see here.

Impact on fraud

The Act’s changes allow Companies House to be far more proactive in analysing filings made, and permit it to take a much more robust approach when determining whether to upload information to the register. Its ability to share information with law enforcement agencies and regulatory bodies for purposes connected with its function should also help those bodies investigate potentially fraudulent activities at an earlier stage. The above timescale for implementation is to be kept under review in the light of Parliamentary time, as well as the technical and operational complexity of adopting the changes. Whilst the planned scale and scope of the increase in Companies House powers is significant on any view, the full impact and effectiveness of these in the fight against fraud therefore remains to be seen. If you would like to discuss the Policy Paper, the impact of ECCTA on your business or find out more about our company secretarial services, please get in touch with James Gliddon.

South West Fraud Forum

The UK’s network of Fraud Forums provide excellent opportunities for practitioners, business and the public/tertiary sector to come together to share intelligence and the latest policy developments. We are hosting the South West Fraud Forum’s Annual Conference, a must-attend event for organisations, practitioners and anyone interested in fraud prevention and response. In particular, representatives from Companies House Intelligence Unit will provide an update on the new powers and approach. From the latest trends in insider fraud, policy developments and best practice in risk management, the Fraud Forums aim to provide this support to its members. Partner at Foot Anstey, and Chair of the South West Fraud Forum, James Gliddon, will be speaking at this event. Authors: James Gliddon, Gena Ritchie, Hannah McIntosh, Tom Bradley.