Fighting crime: how Companies House reforms seek to combat today’s fraudsters

Financial crime and fraud have been longstanding issues globally, as ne’er do wells seek to profit from rogue activities, organised crime, and bogus accounting. It is believed that the proposed reforms of Companies House will make it better suited to prevent or tackle crimes, and better able to adapt to the modern challenges across the financial and accounting sectors. There were three consultations linked to Companies House performance, powers and responsibilities, including: improving the quality and value of financial information on the UK companies register; extending the powers of the registrar; and implementing the ban on some corporate directors. All aspects of business accounting will be impacted by the proposed changes, including reforms to the filing regime such as shorter filing deadlines, as well as changes to the nature and format of the data you will be expected to provide. Not only that, but there will be additional checks for directors in place, should the reforms be ratified, including measures to verify identity before appointment, and increased powers for Companies House to investigate and remove false or inaccurate information. Although not yet concluded or ratified by government, the fundamental reforms have been largely championed by the sector, including the professional body The Institute of Financial Accountants (IFA). John Edwards, CEO of the IFA comments “If the aim of the proposals is to help improve business transactions and tackle economic crime, then we say this can’t happen soon enough. It is essential that the powers are not onerous, and are equitable to the size of business, but we believe the right balance has been struck.” So, what would the reforms mean for businesses? Consultation 1: Improving the quality and value of financial information The government has long prioritised efforts to combat fraud, tax evasion and other forms of economic crime, and these reforms will serve to underpin this goal. They will make Companies House a more effective register by improving the integrity of information made publicly available about companies and other business entities, reforming how information is submitted, what information should be filed, and how Companies House use and process the data. Fundamentally, the reforms will also implement a ‘file once’ approach, providing a framework for filed information to be shared between Companies House, HMRC, and other government agencies. This seeks to reduce the burden placed on companies and increase the efficiency and effectiveness of government agencies in regulating, monitoring, and preventing fraudulent activity. The key reforms from this consultation include: Reducing filing deadlines: as part of the move to digital, with direct connection to source information, the proposals will see deadlines shortened to three months instead of six months from the reporting date for public companies, and six months rather than nine months from the reporting date for private companies. Small company filing options: increasing the depth of financial information supplied to Companies House, to align the availability of information held with that which is already supplied to HMRC and banks. It is hoped that this will drive consistency and transparency, however responses to the consultation did raise concern that this move may negatively impact micro-entities, by deterring lenders and credit agencies from extending finance. It is hoped that these concerns will be addressed before the reforms are ratified. Consultation 2: Powers of the registrar Entrenching additional authority for Companies House, these reforms will give discretionary power to enable the register to reject documents that they have a reason to query. The focus is on increasing reliability of the information held by the register, as well as targeting and restricting criminals who misuse company structures. Consultation 3: Implementing the ban on corporate directors While the power to prohibit corporate directors is nothing new, it has yet to be effectively enforced at any significant level and has so far been limited in its impact on financial crime. The Government is therefore proposing its reform in conjunction with the corporate transparency and register reforms, to make it a more useful and enforceable power. Companies House will need to ensure that all directors are ‘natural persons’ i.e., actual human beings, whose identifies have been individually verified. This is designed to challenge unlawful activity by those who abuse the role of corporate director to prevent individual accountability. The powers will also extend to ID verification for general partners of limited partnerships and for ‘designated members’ of LLPs. For the purposes of overseas entities that trade in the UK, changes will be made so that UK and overseas businesses are given the same treatment. This should improve transparency as the government will scrap the reference to the origin of the director and therefore enable cross-border relationships to be significantly more constructive. The IFA cautiously welcomes reforms As a professional body representing accountants working in SME practice, or for SME clients, we were largely supportive of the potential reforms as a tool to combat financial fraud and also simplify filing processes. We did however query the benefit of shorter filing deadlines, and reject the link between the Economic Crime Levy (ECL) and the Companies House reforms. Proposed last summer, the ECL was reiterated in the March 2020 budget, confirming the government’s intention of a levy, paid for by the AML-regulated sector including accountancy firms, to fund Companies House reforms and increase capacity to tackle money laundering. CEO John Edwards commented: “In the IFA’s response to the consultation, we were of the view that the economic crime levy on the AML-regulated sector should not fund the Companies House reforms. While the accountancy sector has shared objectives with the NECC, NCA and the government to drive down economic crime, and appreciates the need for funding, it is our view that funding from these initiatives must come from other sources such as the government spending review. “Overall, we at the IFA believe that by giving accounting firms and agents access to better quality information, these reforms provide a significant opportunity in the war against fraud and other economic crime and will signal a new era in corporate transparency which can only have positive ramifications for the economy as a whole.” This article has been provided by The Institute of Financial Accountants. More information about the professional accountancy body can be found at www.ifa.org.uk along with the IFA’s full response to the consultations. To register for IFA's upcoming webinars, email lindaw@ifa.org.uk and quote code IFAAT to be charged the IFA member rate of £99. Once payment has been received you will be sent registration details.