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  • Mr Paul Clifton

Company directors required to verify their identity through new Companies House reforms

Updated: Jan 24



Introduction


In September 2022, the government introduced legislation with the aim of improving transparency over UK companies and other legal entities. This was following Russia’s invasion of Ukraine and within the intention of cracking down on Russian 'dirty money' washing through the UK.


The Economic Crime and Corporate Transparency Act received Royal Assent on 26 October 2023 will now affect all limited companies, large and small. If you deal with your own filing at Companies House, rather than using an accountant / solicitor etc, then you will be impacted more and will notice the changes personally.


It will affect you if you form new limited companies, deal with changes in appointment of directors, change in their personal details, like home address, update Companies House on changes in People with Significant Control (shareholders holding more than 25% of a company’s shares). Even with stable directors and shareholders, like most of our limited company clients, they will be affected.


There will be a transition period for existing directors and PSCs to verify their identity, and to comply with the new requirements. Once the rules are introduced, the first time a company may have to comply may be when it next files its annual Confirmation Statement at Companies House.


The main changes to be introduced at Companies House include identity verification for all new and existing company directors, People with Significant Control and those delivering documents to the registrar.


The Economic Crime and Corporate Transparency Act will introduce new identity verification requirements for all new and existing company directors, People with Significant Control and those who file documents at Companies House.


There are currently around 4.5 million companies registered in the UK. The Act will make it more difficult for fraudsters, directors and shareholders etc to show their appointment at Companies House on the public register.


Companies House will become a more active gatekeeper over company creation and custodian of more reliable data.


We take a closer look at the new rules, especially the new director and People with Significant Control verification requirements. Secondary legislation, dealt with by minister, will define exact how the new rules will apply in practice. We are still waiting for the finer details.


Why the new legislation


The invasion of Ukraine has prompted the UK Government to bring forward legislation that will tighten up on anti-money laundering regulations. It is expected that this legislation will force more accountability for the large amount of unaccounted wealth and asset in the UK economy. Part of this is to improve the quality and authenticity of information filed at Companies House.


Companies House is a UK Government agency whose main function is to incorporate and dissolve limited companies; examine and store company information delivered under the Companies Act, like annual Accounts, details of directors, shareholders, and their addresses; and make this information available to the public.


The identity of individuals filed at Companies House, as director and main shareholders, was not required to be verified, which left the system open to abuse.


Companies House operated a filing only service. They had no powers to verify or challenge the information that they receive for filing on the public record. Unless there are technical issues with the filings, e.g. missing box information, missed tick boxes, incorrect legal wording on the annual Accounts then what is filed is accepted.


The legislation should stop abuse of the Companies House records. People have filed names of directors at Companies House like Donald Duck, Adolf Hitler Tooth Fairy and similar false entries in recent years.


The Financial Times has reported “One notable company officer is called Jesus, Holy Christ. He gave his residence as Heaven, nationality as Angelic and occupation as creator.”


Companies House can check, remove or decline information submitted to, or already on, the companies register. The Act will help to prevent those setting up companies under fake identities from hiding money behind fictional names.


Companies House with now have the power to take a much harder line on criminals who take advantage of the UK’s open economy, ensuring the reputation of UK businesses are not tarnished by scammers.


The powers given to Companies House form the biggest shakeup to the service in its 180-year history.


New company formations


Before an application to incorporate a new limited company is sent to Companies House, all the new directors of a company must first be verified.


The main shareholders, the People with Significant Control, must be verified within 14 days following a company’s incorporation and the required notifications submitted at Companies House. Any key corporate shareholders, RLEs, must be verified within 28 days and will be required to provide the name of their verified relevant officer.


The consequences of failing to follow the verification and identity rules could lead to:

  • The company formation being rejected

  • Civil penalties issued by the Registrar

  • Criminal proceedings, which could result in a level 5 fine

  • Inability to submit statutory filings on the company

  • The director’s / individual’s PSC status being noted as ‘unverified’ on the public register

  • Inability to act as a company director

Companies House will now have the power to strike a company's name off the register if it has reasonable grounds for believing it was registered on a false basis.


Identity verification


Stronger identity verification checks are one of the measures introduced by the Economic Crime and Corporate Transparency Act.


There will be two routes to verifying your identity as a director or People with Significant Control.

  1. Directly with Companies House.

  2. An indirect alternative through an Authorised Corporate Service Provider (‘ACSP’).


An ACSP is a new term introduced under the Act. An ACSP will be a professional business, like an accountant or solicitor, who would verify the identity of individuals. The ACSP would instead deal with matter at Companies House on your behalf.


All Paul Limited will be registering as an ACSP and therefore be able to confirm clients’ identity and make filings at Companies House. The directors and main shareholders, the People with Significant Control, at all ACSPs will have to go through similar initial ID checks.


Direct verification via Companies House


These types of identity verifications should be a quick and simple process, so long as the individuals provide their required documents, photo and scans.


Verifying directly with Companies House will mainly be via a digital service.


When an individual tries to verify their identity directly with Companies House, they will receive a digital link from Companies House to provide a photo and/or scan.


The person undergoing verification will provide a copy of a primary identity document, like as a passport or driving licence. They will then take a photograph or scan of their face. The two will be compared, using likeness matching technology, and their identity verified. If successful, the person will be notified in a matter of minutes. Alternative methods will be available for individuals without photographic ID and digitally assisted / non-digital identity verification will be available for users who cannot use the digital identity verification system.


Once complete, the verified status of the individual will be held by Companies House for all future filings. There may be some instances where re-verification is needed, e.g. if someone changes their name.


The process may include checking primary identity documents against government databases.


Indirect verification by an Authorised Corporate Service Provider


You may decide to use the services of an intermediary to file your corporate documents at Companies House e.g. form a new company, change directors; details and to verify their identity.


An ACSP is a company or business registered with a regulatory body for anti-money laundering purposes. An ACSP has existing and future obligation to carry out their own due diligence on their clients which includes anti-money laundering checks on directors and People with Significant Control


Once law, only Authorised Corporate Service Providers who are authorised by Companies House will be able to file documents on behalf of clients. For a ACSP to be issued with authorised status they must be registered with a professional supervisory body for anti-money laundering purposes. Our supervisory body is the Association of Chartered Certified Accountant (ACCA). Obtained Authorised Corporate Service Provider status for us should therefore only be a formality.


Client must of course keep us updated about any changes in their name and address and provide appropriate money laundering ID to us should this arise.


Clients that currently deal with their own Companies House filing may wish in the future to use the authorised status of All Paul Limited to make submission to Companies House.


These identity verification checks, undertaken by ACSPs, of the directors and People with Significant Control, are designed to give the same level of assurance, and be just as reliable as those undertaken through the direct verification route.


To maintain transparency, ACSP will be obligated to declare that they have completed all of the necessary identity verification checks when they make filings at Companies House. They will also be required to keep records regarding the identity checks and Companies House may request further information, if necessary.


Individual director verification


A director of a company will have to confirm their identity. Without verification they will not be registered as a director at Companies House and will be committing an offence. The person will be liable to a fine. If a company breaches their obligations, every director of the company and the company itself are liable to a fine. However, failure to provide identity will not invalidate the director’s appointment.


The current directors of a company will have to be verified on the first annual confirmation statement after the new rules into effect unless they are appointed a director or change their details beforehand. Newly appointment director will have 14 days to verify their identity.


Unlike a director, the identity of the company secretary does not have to be verified. However, any change in the company secretary’s details must still be filed within 14 days of the change. Failure to meet the deadline is an offence, liable to a fine, by the company and every director of the company.


Requirement to notify changes in directors’ details


Whenever there is a change to a director’s details, including making corrections, they must be filed within 14 days of the change. The required changes include the following:

· Name, date of birth, nationality

· Former names

· Residential address

· A service address

· Part of the UK the individual resides


Failure to verify


If you fail to follow the new verification check would constitute an offence, punishable by imprisonment or a fine, or both. In addition, Companies House would have the power to take certain actions for non-compliance, which could trigger the compulsory strike-off of a company or removal of a director.


People with Significant Control verification


Just like directors, People with Significant Control must also have their identity verified. Initially, like directors, this could be on the first annual Confirmation Statement after the new rules apply. Thereafter, People with Significant Control would have their identity verified when they become a PSC or their details change.


People with Significant Control is someone, or another company (RLE), that controls more than 25% of the shares and/or votes of the company, has the ability to appoint or remove a director, e.g. under the Articles of Association or Companies Act 2006, or an individual who exerts significant influence but who does not fall within the first three statements.


A Relevant Legal Entity (RLE) is a corporate body, firm or other legal entity, like a limited company, which would qualify as a People with Significant Control of another company if it were an individual.


Each RLE must verify the identity of a relevant director, and keep that individual’s verified status, so long as the RLE is registrable.


If the identity of a PSC is not verified within 14 days, or 28 days for RLEs, the consequences can amount to a criminal offence and fines can be imposed on all the director of the company, as well as the company itself.


How does verification work?


The identity check is expected to be a one-off requirement, but would need to be updated in certain circumstances, e.g. changes of name.


Registered email address


All companies will be required to have an email address registered at Companies House for the purposes of allowing the latter to communicate with the company. It can also be used to send any required documents or information to the company. The email address will not be on the public record. The email address must be provided to Companies House on a company’s first Confirmation Statement after 4 March 2024.


Lawful activities


From 4 March 2024, all companies will have to confirm that they are forming a company for a lawful purpose when they incorporate. A similar confirmation, of lawful activities, will also be required on each confirmation statement after 4 March 2024.

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