Corporate Transparency and Reforming Companies House

The government has published a White Paper that sets out a wide range of proposals on corporate transparency and reforms to Companies House, which it views as delivering on priorities centred around: national security, anti-corruption and organised crime; protecting individuals and businesses from fraud; and boosting enterprise.

The proposals will be introduced in the coming months via a further Economic Crime Bill and follow on from three previous consultations: enhancing the powers of the Registrar of Companies; improving the quality and value of financial information on the UK Companies Register; and prohibiting corporate directors.

The proposals signal the government's position on reforms to the Companies House framework and seek to:

• transform Companies House;
• strengthen the role and powers of the Registrar;
• enhance identity verification processes in respect of directors, beneficial owners and their agents;
• enhance data sharing;
• prevent abuse of personal information on the Register; and
• improve financial information on the Register.

Key proposals

The White Paper sets out a list of 58 proposed reforms in Annex 1 which can be grouped under the following six areas.

1. Transforming Companies House

"Companies House will change to reflect its new role in the economy and its responsibility to help achieve the government’s priorities in national security, anti-corruption, tackling fraud and boosting enterprise. The changes will comprise the most fundamental change to its purpose and role since its creation; indeed, since the creation of the role of Registrar in 1844."

The White Paper states that the transformation of Companies House is already underway. Areas being tackled currently include skills, culture, operating model and services. The transformation will include updated digital systems with data stored in machine-readable format so that it is easier to access and process both internally and by external users including law enforcement agencies . There will also be greater emphasis on analytical work to maximise quality data. The result is intended to be a more innovative and flexible organisation with different roles requiring different skills including new investigation and intelligence functions.

2. Strengthening the role and powers of the Registrar

"Companies House will no longer be a passive administrator of company information but will become a much more active gatekeeper over company creation and custodian of more reliable information on the Register."

The government proposes to introduce a new statutory function for the Registrar of promoting and maintaining the integrity of the Register. The new role will capture economic crime and other activities that may undermine the integrity of the Register.

The Registrar will be given new powers, including a power to reject and query new filings and to query information already on the Register. The power can be used at the Registrar's discretion in line with evidence or risk assessments, where information is identified (internally or by third parties) as potentially fraudulent, suspicious, or might otherwise impact upon the integrity of the Register. Recipients of requests will have 14 days to respond although the Registrar can extend this time period. Failure to respond, or to provide sufficient evidence in response to a query, could lead to a number of actions, including imposing a sanction upon the entity. A range of sanctions are being considered. Guidance will be produced to help companies understand how and why these powers might be used.

Other powers of the Registrar will also be enhanced. The proposals envisage the Registrar being able: (i) to remove information from the Register; (ii) deal with the abuse of and problems associated with registered office addresses and company names; and (iii) expand the requirements for proper delivery of documents to Companies House to include ID verification and other checks.

3. Identity verification and other measures concerning directors, beneficial owners and their agents

3.1 Identity verification

"Mandatory identity verification for those incorporating and filing with Companies House is essential for our goal of making register information more reliable, with consequent benefits for business and combatting economic crime."

Identification measures proposed include:

• All entities registered at Companies House must have at least one fully verified natural person directly associated with them on the public Register, the natural person being subject to identity verification.
• Individuals required to register an account with Companies House and verify their identity will include new and existing company directors, equivalents at other types of organisation, persons with significant control (PSCs), directors of Relevant Legal Entities (RLEs), members of LLPs, and third parties seeking formations or presenting filings. (A full list of individuals required to verify their identity is set out in annex 1 of the White Paper).
• A director will need to be registered and verified before he or she can apply to be a director. A director who has not done so by the end of a set period will commit an offence and may also be liable for a civil penalty. A company that is directed by an unverified director will also commit an offence.
• If a director, PSC or other relevant person already has a verified Companies House account (for example, if they are a director of another registered company), they will not have to re-verify, and any new registration will be linked to their existing account.
• Third parties will need to be, and confirm that they are, registered and supervised in the UK before they can form entities or file on their behalf (although the government will have the power to allow third party agent registrations and filings from an overseas jurisdiction considered equivalent to the UK). Registration will allow third parties to conduct the identity verification checks that will allow directors, partners of LLPs, general partners of LPs and PSCs to open an account with Companies House. Third parties will be required to submit evidence of the identity verification checks that they are responsible for and Companies House will only register entities if it is satisfied that the checks conducted by the third party are to at least the same standard as those required if such a person or entity verified directly with Companies House. Any applications which do not meet the requirements will be rejected.

3.2 Corporate directors

"This measure will promote transparency by lifting the shield of anonymity much earlier in the process. Enquirers will no longer have to search through chains of corporate control only to find more companies listed."

The government's intention is to implement the prohibition on corporate directors (which exists in legislation already but has not yet been brought into effect) but also to create an exception to it. The proposal is that corporate directors will not be permitted unless: (i) all directors of the company seeking such appointment are themselves natural persons; and (ii) those natural person directors are, prior to the corporate director appointment, subject to an appropriate identity verification process (as discussed above). A corporate director must be a UK registered entity, meaning that overseas registered corporate entities will be prohibited from being appointed.

3.3 Transparency of company ownership

"Better information will help improve the integrity of the [PSC/RLE] Register and will make it harder for bad actors to benefit from exemptions they are not entitled to."

Transparency of company ownership proposals seek to improve the usefulness of information held on shareholders and PSCs/RLEs of UK companies through:

• Introducing a requirement for companies to record full names of shareholders in their Registers.
• Introducing a requirement for private companies, and traded companies where shareholders hold at least 5% of the issued shares of any class of the company, to provide a one-off full shareholder list, with changes to be updated annually when a company files its confirmation statement.
• Collecting and displaying more information from companies claiming an exemption from the requirement to provide details of its PSC, including: the reason for the exemption; if listed on a regulated market, the name of the market on which the company is listed; and information that will direct searchers to where PSC information is published.
• Collecting and displaying the RLE conditions satisfied in each case to be recorded as a PSC; and, if listed on a regulated market, the name of the market on which the RLE is listed so as to give assurance that the RLE meets the condition as claimed.

4. Enhancing data sharing

"Companies House has very limited powers to analyse and share the information it holds. This part sets out a package of measures which will enable Companies House to share intelligence with law enforcement, regulatory bodies and the private sector"

The Registrar will be given the power to pass on proactively relevant information (instead of just responding to a request) to law enforcement and other public and regulatory bodies (including the electoral commission and anti-money laundering supervisors) when certain conditions are met. These conditions are for the purposes of: (i) enabling the Registrar to fulfil its statutory role and functions; (ii) assisting other bodies in the prevention and detection of crime or in the interests of national security; or (iii) enabling regulatory bodies and supervisors to fulfil their statutory obligations or functions.

With the intention of improving the integrity of the Register, the Registrar will be given the power to cross-reference data with that held by both public and some private bodies (subject to compliance with data protection requirements). The Registrar will be able to provide feedback where appropriate to the organisation that provided the data, and a data sharing gateway will also be created for more organisations to provide feedback to Companies House about data discrepancies or suspicious activity.

It is also proposed to expand the discrepancy reporting requirements imposed on regulated professionals such as financial institutions to report discrepancies between the information they hold on certain matters and that on the Register. This will expand to include discrepancies in director-related information and in relation to Registered office addresses.

5. Preventing abuse of personal information on the Register

"The government’s aim is to strike the right balance between transparency over who is running companies, whilst ensuring that transparency does not become a tool for abuse and that information is only displayed publicly if it is necessary and proportionate to do so."

Enhanced procedures are proposed to protect personal information such as names, signatures, dates of birth, residential addresses, sensitive addresses, business occupations and, in the most serious cases, all required particulars on the Register. An individual applying to protect such information must provide evidence showing that they are personally at risk of harm.

A new process to allow applicants to suppress "sensitive" addresses is proposed. Evidence will be required as to why an address is deemed to be sensitive, and if the sensitive address is the current registered office address of an active entity, a new, valid registered office address must be provided before the sensitive address is suppressed.

New measures allowing applicants to access certain suppressed information are also proposed. An applicant must provide evidence that they have a legitimate interest in doing so (for example, for certain legal proceedings, the investigation of an economic crime or in connection with money laundering supervisory obligations).

The requirement for directors to provide a business occupation is to be removed and this information will no longer appear on director pages on the public Register. Applicants can also have business occupations suppressed where displayed on the public Register in historic filings.

6. Improving financial information on the Register

"Improving the transparency and integrity of [financial] information will help to create a more informative, responsive and reliable companies' register, which will benefit the millions of businesses and others which access it every day."

Annex 4 of the White Paper sets out the government's response to its previous consultation on improving the quality and value of financial information on the UK Companies Register.

Proposals to improve the transparency and integrity of financial information include:

• Requiring company accounts to be filed with Companies House in a digital format using the industry standard Inline Extensible Business Reporting Language (iXBRL) with full machine-readable tagging of each financial element within the accounts.
• Introducing a new power in the Companies Act 2006 for the Secretary of State to be able to make regulations for changing filing periods for company accounts in the future. The government considered reducing the time periods for filing accounts (of nine months after the end of the reporting year for a private company and six months for a public company) so that the financial data on the Register is as current as possible. However, recognising the pressures companies are still under in light of the pandemic, the government is not intending to shorten the filing deadlines.
• Simplifying the filing options for small and micro entities, and also requiring more information to be filed. This means that Companies House will receive a balance sheet and profit and loss account for all small companies, including micro-entities. Small companies will also file a director’s report unless they meet the micro-entity thresholds. The government believes that the filing of this extra information will yield benefits, such as making it easier for lenders and creditors to determine creditworthiness. A requirement on small companies to file sufficient information, together with a requirement on dormant companies to file an eligibility statement, should also make it more efficient for Companies House to check eligibility for accounting exemptions and to help categorise companies by size.
• Exploring an option to enable companies to file their financial information once a year with the government (a "file once" approach), instead of filing different elements of information with each government department that requires it at various times. The government believes that such an approach should eventually deliver significant cost savings for business, and help government agencies to regulate, monitor and prevent fraudulent activity. There are, however, currently no firm plans to deliver on the "file once" objective.