The continued focus on economic crime and transparency

The Economic Crime and Corporate Transparency Bill (the “Bill“) follows in the footsteps of the recent Economic Crime (Transparency and Enforcement) Act 2022 which brought into force the “Register of Overseas Entities”, requiring foreign entities (companies and other entities) to register the details of their beneficial owners with Companies House before the 31 January 2023. The Bill, which is now in the House of Lords at the second reading, is set to introduce further regulations to increase the transparency and reliability of data submitted to Companies House. One significant reform of the Bill will be the new identity verification requirements. In this article we expand upon what identity verification will mean for you and your business.

Will I need to verify my identity?

In general, those who are setting-up, managing, or have significant control of a UK company will need to comply with the new identity verification requirements of the Bill when it becomes law.

This means that:

  • all new and existing directors;
  • each “person with significant control” (PSCs), and directors of “relevant legal entities” (RLEs) in relation to a company (beneficial owners); and
  • those delivering documents to Companies House,

will be required to verify their identity with Companies House within the relevant time frame or risk committing an offence.

What are the relevant time frames?

Directors

Individuals cannot act as a director unless they have their identity verified first with Companies House. An individual who fails to verify their identity and acts as a director will commit an offence. A company that fails to ensure that an individual is verified before they act as a director, will commit an offence.

For existing directors they will have until the end of the transition period to verify their identity. The transition period is yet to be confirmed.

Beneficial owners

PSCs:Each PSC will have to register their identity and maintain their verified status for so long as they are registered as a beneficial owner with Companies House. PSCs will be required to verify their identity within 14 days of becoming a PSC.

RLEs: A RLE will have to verify the identity of a relevant officer and the RLE must maintain the verified status of that relevant officer for so long as the RLE is registered as a beneficial owner with Companies House. RLEs will have to verify the identity of a relevant officer within 28 days of the appointment date of that relevant officer.

The company concerned may choose to provide the verification of the PSCs/RLEs to Companies House, however it does not have to. Companies House will have the power to directly enforce verification obligations against the beneficial owners.

For existing beneficial owners they will have until the end of the transition period to verify their identity.

How do I verify my identity?

The Bill proposes two methods for identity verification. First you can verify directly by sending the identity documents to Companies House, and the second method is to submit them indirectly through an authorised corporate service provider (an “ACSP”) who completes the process for you. An ACSP is a firm that is regulated for the purposes of the UK’s anti-money laundering regime and who has submitted an application to Companies House for authorisation.

According to Companies House verifying ones identity will involve “linking a person with a primary identity document”, for example, a passport or driving licence. Companies House aims for this to be completed fully electronically and generally identity verification will be a one-off requirement.

How long do I have to verify?

As the Bill is still subject to the parliamentary process, we are unaware of when the Bill shall become law, however Companies House has indicated that the Bill is expected in spring of 2023.

What will happen if I miss a deadline to verify?

While the Bill will introduce a “transition period” for existing company directors and applicable shareholders to comply with the new identity verification requirements. The Bill shall introduce new offences for those persons who fail to verify their identity with Companies House.

An individual who fails to comply with the identity verification requirements risks being subject to criminal proceedings, civil penalties, new company formations being rejected, statutory filings being refused and the individual being annotated on Companies House as unverified.

Next steps

While the Bill is currently at an early stage, it is expected to become law in spring of 2023 and Thompson Smith and Puxon will continue to monitor the Bill’s development. If you would like to discuss the Bill and its impact please contact Mary Anne Fedeyko or your usual TSP contact.

You can read more about the Bill and what else it is set to introduce here: https://www.tsplegal.com/general/corporate-transparency-and-the-evolving-role-of-companies-house/.