Companies House – a transparency transformation or just a bit more make-up?

On 28 February 2022, following consultation, the Department for Business, Energy and Industrial Strategy (BEIS) published a White Paper on corporate transparency and register reform, which sets out plans to increase the transparency of UK corporate entities and enhance the role and powers of Companies House by making some changes to the way it operates. 

The White Paper lays down the government’s plan for a legal overhaul of the register that, if implemented, will add to Companies House’s powers and better arm it to meet the demands of today’s economy and build a stronger foundation for boosting enterprise.

The aim is to create a more robust and comprehensive (but still low cost and easy to use) framework to prevent fraud, money laundering and identity theft. The key changes proposed to achieve this are as follows:

1. Roles and powers of Companies House – a new statutory role of ‘promoting and maintaining the integrity of the register’ will be introduced.  This is envisaged to include a discretionary power to query suspicious filings or appointments, to ask for further evidence in certain circumstances and to reject a filing or remove material which Companies House suspects is fraudulent or may compromise the integrity of the register or the wider business environment. At present, Companies House has limited powers in respect of verifying or correcting the accuracy of the information that it lists, so this expansion of the rules for filing documents at Companies House to ensure they are subjected to verification checks before they are accepted is arguably a significant shift in the role of Companies House from passive record-keeper to active gatekeeper.
   
   
2. Company names – a new power to query company names which are proposed or registered in various circumstances, such as where there is an indication of fraud or other criminal activity, and also to direct the company to change its name in the event that Companies House is not satisfied with the responses provided to their queries.
   
   
3. Identity verification – new rules requiring verification of identity are proposed which will mean that those setting up, managing and controlling companies (including all new and existing directors, LLP members, general partners of limited partnerships, Persons with Significant Control (which also covers directors of overseas companies and directors of Relevant Legal Entities)) will need to have followed a process to verify their identity with Companies House directly, or have registered and verified their identity via an anti-money laundering supervised third-party agent. All entities registered at Companies House will need to have at least one person associated with them on the register who has followed this verification process, which aims to make anonymous filings harder and to add another layer to the existing PSC regime in discouraging those wishing to hide their company ownership through nominees or opaque corporate structures. Directors will also have links to their appointments in one place, which for practical purposes will be helpful to those searching the register. In addition, companies will only be allowed to act as corporate directors if all of the directors of that company are themselves natural persons who have had their identities verified.  As with previous changes to Companies House requirements, it is anticipated that there will be a transition period for implementation, following which criminal sanctions and civil penalties may flow from non-compliance with these new identity verification rules. 
   
   
4. Data sharing – It is proposed that Companies House will have also have more extensive legal powers for data sharing in relation to all information held by Companies House with, for example, law enforcement, other government bodies, public authorities, supervisory bodies and insolvency practitioners.  This will apply on a case-by-case basis within set parameters.  Companies House will also have the ability to request data from public and private bodies and cross-reference any data received with the information it holds, for the purpose of improving the integrity of the register.
   
   
5. Privacy and personal information – in addition to the current processes available, there will be further powers granted to (i) allow Companies House to prevent information from being displayed on the register in certain scenarios (for example, where an individual is at risk of harm) and (ii) give Companies House a general discretion to remove or suppress personal information on the public register if they deem it prudent to do so. How and when this power is likely to be used will be interesting to see, but should allow Companies House to act swiftly if and when the need arises.
   
   
6. Financial information – enhanced validation checks are envisaged in respect of financial information provided to Companies House (e.g. a company’s annual accounts) to check that the information delivered is complete and coherent.

All of the above changes are intended to be integrated in a way that complements the current Companies House framework, keeps it low-cost and easy-to-use, and supports the Companies House 2020 to 2025 strategy which seeks to transform digital services, improve security and implement data validation and verification measures. 

In their impact assessment, BEIS consider that the key costs associated with this proposed reform will be:

For Businesses:

• Costs of familiarising and complying with different aspects of the policy package, such as the introduction of identity verification, estimated to cost around £10 per individual in time costs.

For Professional bodies/supervisors:

• Increased requirements on professional bodies, such as reporting discrepancies of information received by companies.

For more information on how the changes might affect you and your company, please contact a member of the BPE Corporate team. 

For a full copy of the Corporate Transparency and Register Reform White Paper as published on the Government website please click here.

For a copy of the Companies House 2020 to 2025 strategy, under which it seeks to transform digital services, improve security and implement data validation and verification measures, please click here. 

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.