The Economic Crime and Corporate Transparency Act 2023: What UK Businesses Need to Know

Read more: The Economic Crime and Corporate Transparency Act 2023: First Changes to be Introduced on 4 March 2024.

The Economic Crime and Corporate Transparency Act 2023 (the "Act") received Royal Assent on 26 October 2023, setting in motion significant changes to the UK's corporate transparency regime and a transformation process at the UK's Companies House.

What does the Act do?

The Act seeks to promote corporate transparency and fight fraud, money laundering and other crimes in the UK’s corporate, real estate and business sectors. It strengthens and expands the UK's economic crime legislation, following on from the Economic Crime (Transparency and Enforcement) Act 2022, which was fast-tracked last year due to the war in Ukraine.

The reforms include new corporate criminal offences, a new test for corporate criminal liability and an extension of the powers of the UK’s Registrar of Companies. The extension will enable the Registrar to become an active gatekeeper over information held at the UK’s Companies House.

Looking at some of these changes in more detail, the Act:

• Creates a new criminal offence – failure to prevent fraud.
• The new offence means a relevant organisation can be liable for fraud if it profits from fraud committed by employees, subsidiaries or other service providers.
• The offence applies in all sectors and includes not for profits, but the initial thresholds on turnover, assets and number of employees have been set so only large organisations are in scope. However, subsidiary companies may be caught if the group of companies cumulatively meets two of the three threshold criteria.
• If convicted, an organisation is liable to an unlimited fine. To avoid prosecution, organisations will have to show they have "reasonable procedures" to prevent fraud. The offence will not come into force until the government has published guidance on "reasonable procedures."
• Seeks to prevent abuse of limited partnerships, including Scottish limited partnerships.
• The Act tightens registration and transparency requirements, requires limited partnerships to maintain a connection to the UK and modernises the law that governs partnerships.
• Disqualified directors will be unable to act as general partner of a limited partnership.
• Companies House may de-register limited partnerships that have been dissolved or no longer do business, including as a result of a court order.
• Empowers investigators to seize suspected criminal cryptoassets.
• Law enforcement receives additional power to seize cryptoassets that are the proceeds of crime or are associated with illicit activity, such as money laundering, fraud or ransomware attacks.
• The Act strengthens anti-money laundering powers to enable better information-sharing on suspected money laundering, fraud and other economic crimes.
• Amends the "identification principle" for a corporate criminal offence to make it easier to prosecute companies and partnerships.
• A company or partnership will be guilty of a criminal offence if a "senior manager", acting within the scope of their authority, commits the economic crime offence. It will no longer be necessary to show that such a senior manager was part of the “directing mind” of the organisation.
• This change will make it easier to prosecute a company for criminal wrongdoing, although the government hopes the changes will act as a deterrent rather than increase prosecutions.

How else will the Act affect UK businesses?

The Act will also affect registered companies and partnerships in more mundane ways, including requirements to:

• Register a valid e-mail address with Companies House.
• Disclose standardised details for shareholders, including subscribers on incorporation.
• Provide a valid registered office address, capable of having delivery and receipt of correspondence acknowledged.
• Register as an “Authorised Corporate Service Provider” to deliver documentation to Companies House. That service provider must register with a supervisory body for anti-money laundering purposes and must have an existing duty to carry out due diligence on their clients. Orrick intends to register as an Authorised Corporate Service Provider.

What other reforms does the Act include?

• Introduction of identity verification, for all new and existing registered company directors (including confirmation that individuals are not disqualified), People with Significant Control ("PSC"), members of a limited liability partnership and those delivering documents to the Registrar. The initial subscribers to a company and persons who will be registrable on incorporation under the PSC regime will also have to confirm that they are not disqualified directors. The goal is to improve the accuracy of Companies House data, support business decisions and law enforcement investigations. It is intended that, in the long term, Companies House will annotate the Register of Companies to highlight Directors and PSCs who remain unverified.
• Broadening of the role of Companies House to ensure the accuracy of the information held by the Registrar of Companies. That includes new powers to check, remove or decline information submitted to or on the Register of Companies.
• Improvement of financial information on the register so it is more reliable, complete and accurate; reflects the latest advancements in digital technology and enables better business decisions. This will mean that the form and filing of accounts will also change, with requirements for electronic submission and submission in iXBRL format intended to become mandatory. There are also updates to the financial statements required for small and micro entities.
• Provides Companies House with more effective investigation and enforcement powers and introduces better cross-checking of data with other public and private sector bodies. Companies House will be able to share information with law enforcement where they have evidence of anomalous filings or suspicious behaviour.
• Enhances the protection of personal information provided to Companies House to protect individuals from fraud and other harms.

What should businesses consider doing now?

Anti-fraud steps:

• Assess key areas of risk, identify gaps in fraud prevention policies and ensure robust measures to prevent fraud.
• Consider the need for employee communications and training on the scope of the new anti-fraud regime, especially at the "senior manager" level.

Companies House administrative steps:

• Ensure the full names of each director and PSC, as shown on their ID, is disclosed to Companies House.
• Ensure their next confirmation statement contains shareholders’ full names (e.g. forename and surname if an individual or full company name).
• If a P.O. Box address is part of a registered office address, update the address to remove the P.O. Box prior to implementation.
• A company that opts to keeps its Register of Members with Companies House should ensure the register is created and maintained at the company’s registered office address or single alternative inspection location (if registered).
• Identify or create an email address to register.
• Ensure that all filings are consistent and correct. Companies House are already tightening up procedures in light of their broader powers and are actively reading documents to ensure consistency in registered information and a higher degree of accuracy. As an example, in accounts, previously they would not check the text for inaccuracies. Now they will reject a document if there is a simple typographical error in the name of the company in the text.

What’s next?

A number of secondary legislative changes are required to implement the measures in the Act, including the failure to prevent fraud offence, although the new corporate criminal liability identification regime is expected to begin on 26 December 2023.

The Registrar of Companies has indicated that changes to come into force in early 2024 will include:

• The increased powers to query information. This means Companies House will be able to scrutinise and reject information that seems incorrect or inconsistent with information already on the register. In some cases, Companies House will be able to remove information.
• The implementation of stronger checks on company names.
• New rules for registered office addresses.
• A requirement for all companies to supply a registered email address.
• A requirement – on incorporation and annually – for all registered businesses to confirm their future activities will be lawful. This will be added to the incorporation papers and confirmation statement.
• Annotations will be added on the register to let users know about potential issues with the information that’s been supplied.
• Actions to clean up the register, using data-matching to identify and remove inaccurate information.
• Steps to share data with other government departments and law enforcement agencies.

We will issue further updates as the implementation details are finalised.