Advice & Best Practice

The Economic Crime and Corporate Transparency Act: an overview

While the bill has been enacted and some measures have already taken effect, others required secondary legislation and further guidance from Companies House

The Economic Crime and Corporate Transparency Act 2023 (ECCTA), which received Royal Assent on 26 October 2023 and became law, covers a wide range of reforms – Companies House being one of many that have been overhauled under this act. 

The act builds on the Economic Crime (Transparency and Enforcement) Act 2022, which was introduced in light of Russia’s invasion of Ukraine. Together, these acts aim to provide additional powers to tackle money laundering and other unorthodox activities. The long-awaited Companies House reforms also form part of the act.

Businesses will have felt the reforms to Companies House the most, having affected the information that will be filed with the registrar and consequently on the public record, as well as the introduction of a new ‘failure to prevent fraud’ offence. 

While the bill has been enacted and some measures have already taken effect, others required secondary legislation and further guidance from Companies House. Alarmingly, a financial penalty may be a consequence for companies that do not respond to a formal request from Companies House.  

From 4 March 2024, new rules were agreed upon for registered office addresses to be “appropriate” (meaning that the use of a PO Box is no longer an option for a registered office); companies must provide a registered email address, with new companies needing to provide this upon incorporation; and companies need to confirm that they have been formed for a lawful purpose and prevent the use of names which may give “a false or misleading impression to the public”, as the registrar has been bestowed greater powers to query and challenge information that appears to be incorrect or inconsistent with existing information. 

Other changes are also expected to be implemented to Companies House. While currently small and micro entities are able to take advantage of reduced filing options, the removal of these options means that information about an entity will be on the public record for the first time – most notably turnover and for small companies, further indicators such as operating profit and net profit. 

Additional changes will require accounts to be filed digitally and fully tagged. There will also be a requirement for a company relying on an audit exemption to include a statement on the balance sheet. Companies House will also close loopholes, which going forwards will limit the number of times a company can shorten its Annual Reporting Period to once every five years, unless there are good business reasons to do this more frequently.

In a bid to improve the accuracy of Companies House data, directors and People with Significant Control (PSCs) will also be required to verify their identity. There will be restrictions on the use of corporate directors, such that only corporate entities with “legal personality” will be appointable and would need to be registered in the UK, while the directors of these corporate entities must be natural persons. 

Also of significance to businesses is the introduction of a new corporate offence and reform of the corporate criminal liability laws.

Failure to prevent fraud – the new recognised corporate offence – looks to hold an organisation criminally liable where employees, agents and subsidiaries commit a fraud intending to benefit the organisation if it does not have a reasonable procedure in place to prevent said fraud. 

Meanwhile, corporate criminal liability will determine whether the committed criminal offence was carried out by the “directing mind and will” of the corporation. The change has come into play because, since organisations have grown, decision-making has become more dispersed rather than being concentrated to a few individuals. Unlike the failure to prevent fraud offence, these changes apply to all organisations. As a result, businesses will need to consider whether those playing such roles are fully aware of these additional responsibilities.

Show More
Back to top button