The Economic Crime and Corporate Transparency Act 2023

The Economic Crime and Corporate Transparency Act 2023 has now received Royal Assent and become law. The Act is part of the government’s commitment to deliver a suite of wide-ranging reforms to tackle economic crime and improve transparency over corporate entities.

In this blog, we take a look at a selection of the changes introduced by the Act.

Companies House reform

The Act aims to give greater powers to the registrar, Companies House, making it an ‘active gatekeeper’ over company creation and a custodian of more reliable data. Some of the changes to be introduced as part of this reform include:

• When forming a company, the identity of each director must have been verified.
• An individual must not act as a director of a company unless their identity has been verified.
• Individuals or firms delivering documents to Companies House must also have had their own identity verified.
• Greater powers for Companies House to give notice to reject documents for inconsistencies, give notice to remove inconsistencies and remove and/or change names on the public register in certain circumstances.
• Powers for Companies House to strike companies off the register if there is reasonable cause to believe the company has been registered on a false basis (e.g. information in an application was misleading, false or deceptive in a material particular).
• Abolition of the requirements for a company to keep its own register of directors, register of directors’ residential addresses, register of secretaries and register of people with significant control, instead requiring the information to be provided to Companies House.

Fees charged by Companies House are expected to rise in order to cover its increased costs.

Limited partnerships

The Act introduces reforms for limited partnerships, tightening registration requirements, requiring a connection to the UK to be maintained, increasing transparency and giving greater power to Companies House to deregister limited partnerships, where appropriate.

Small companies – accounting and reporting

From an accounting and reporting perspective, some of the biggest changes introduced by the Act relate to small companies.

Specifically, small companies will no longer have the option to abridge their accounts.

Small companies will also have to file their profit and loss account, and their directors’ report.

Micro companies will have to file their profit and loss account, but will still not be required to either prepare or file a directors’ report.

Failure to prevent fraud offence

The Act introduces a new failure to prevent fraud offence for large organisations (currently the same size thresholds as used for large companies in the Companies Act 2006, although the offence will not just apply to companies).

A large organisation will be liable, under the new offence, where a person associated with the organisation (e.g. an employee, agent or subsidiary etc.), commits a specified fraud offence for the benefit of the organisation.

It will, however, be a defence if the organisation had reasonable prevention procedures in place. Guidance on what would constitute reasonable procedures is expected to be in place before the offence comes into law.

Timescales

These changes outlined above will come into effect on such a date to be specified by statutory instruments made by the Secretary of State or the Lord Chancellor, which have not yet been drafted.

How can Mercia help?

Mercia will follow the introduction of the statutory instruments which will bring the above changes into force as they come into effect. Our training and methodology will be updated to reflect revised requirements and our experts will be on hand to answer technical queries too.