Essential Corporate News – week ending May 10, 2019

BEIS: Corporate Transparency and Register Reform – Consultation

On 5 May 2019, the Department for Business, Energy & Industrial Strategy (BEIS) published a consultation paper which considers reforms to the information that companies are required to disclose to Companies House, increasing the checks on this information and measures to improve the exchange of intelligence between Companies House and other UK law enforcement bodies. BEIS notes that the proposals in the consultation paper, if all implemented, would amount to the most significant reform of the UK's company registration framework since the register was first introduced in 1844.  Sanctions will be needed to support the new proposals and BEIS notes that as the proposals are developed further, it will need to consider fully the range of sanctions.

The Government proposes that the reforms will generally apply to any corporate body subject to the disclosure requirements of the Companies Act 2006 (CA 2006) where relevant (private and public limited companies, unlimited companies, unregistered companies and overseas companies), as well as to limited liability partnerships and limited partnerships.

The consultation sets out the proposals in five parts and these include the following:

Part A: Knowing who is setting up, managing and controlling corporate entities

• In Chapter 1, the Government explains that due to cases of UK corporate entities being deployed by international criminal elements, of false claims that individuals are company directors, and the provision of false information, there is a case for introducing checks to verify the identifies of individuals setting up, managing or controlling corporate entities.  The Government wants to address the issue of UK-registered entities being set up and used without any customer due diligence checks being carried out.  One option would be to force all companies to be set up through an anti-money laundering regulated agent, or acquire a UK bank account to be established on incorporation, but this would result in a lengthy and expensive incorporation process.  The Government's preferred approach is to introduce identity verification into the incorporation and filing processes run by Companies House.

• Chapter 2 considers how identity verification might work in practice.  Identity verification would extend to all individual directors, people with significant control (PSC) and presenters (people connected with the company who file information about it on the register).  Information provided by individuals to verify their identity would not be publically accessible and access would be restricted to Companies House officials.  It could be extended to law enforcement agencies on a case by case basis.  The identify of individuals would be verified before they are added to the company register, and before updated information about existing individuals is changed on the register.  The Government is exploring the range of options available for identify verification.  It seeks views on whether identity verification undertaken by third party agents under existing customer due diligence obligations can be accepted without requiring a duplicate check, so that the focus would be on incorporations and filings from individuals and non-anti-money laundering supervised presenters, or whether the information requirements should apply to all companies.

• Chapter 3 explores in more detail how identify verification might apply to presenters, directors and PSCs.  The Government believes all directors should be required to verify their identity.  If on incorporation any prospective directors of a company cannot verify their identity, then Companies House would not incorporate the company.  The Government is to consider how the proposals would extend to corporate directors.  If a registered company purported to appoint a director whose identity has not been verified, then an offence would be committed.  Identity verification would also be introduced for PSCs.  Responsibility for verifying the identify of PSCs would rest with them and any sanction should fall on the individual PSC and not the directors of the company.  The Government is considering the nature of the sanctions that would apply and is also going to consider how the principles would apply to companies owned and controlled by legal entities, as opposed to individuals.  Presenters would also be required to verify their identity, unless the presenter is a company director who has already verified their identity.  If a presenter is unable to verify their identity, Companies House would not accept their filings.  The Government is considering the application of this regime to existing directors and PSCs.  It believes it would be preferable for all individuals still in active roles to be verified.  One option would be to require all existing live company directors and PSCs to verify their identity in line with the new requirements.

• Chapter 4 proposes measures to require companies to collect far more information about shareholders.  The Government believes the Companies House register should enable someone to easily find out the limited liability entities which an individual is involved with, regardless of whether their role is as a company officer, a PSC and/or as a shareholder of a company.  To do this, Companies House would need to have information about the person's name, usual residential address and date of birth.  For a corporate shareholder, the corporate or firm name and the registered or principal office would need to be provided.  The Government is proposing that a company should collect this information and enter it in its register of members before submitting it to Companies House.  The information would have to filed as part of an incorporation application (for subscribers) and when there is a change in shareholder details.  The requirement would apply to non-listed companies.  It would not apply to a company which is a DTR5 issuer, and if a company's shares are traded on a relevant market, the information would only be required if a shareholder has at least five per cent of the shares.  However, the Government does not intend to mandate identify verification for registered shareholders.  It proposes to make identify verification optional for shareholders but to introduce flags on the register where shareholder entities have not been verified.  Alternatively, checks for shareholders above a certain ownership threshold could be mandated.

• Chapter 5 considers linking identities on the register and suggests that identity verification will be a more effective way of linking records on the register than unique identifiers, powers for which were legislated for in the CA 2006 but have yet to be used.

Part B: Improving the accuracy and usability of data on the register at Companies House

• Chapter 6 sets out why the Government believes there is a case for granting Companies House more flexibility before and after new information is entered on the register.  It proposes that Companies House should have the power to seek further information before accepting a filing and more administrative flexibility to change or remove information on the register.

• Chapter 7 proposes introducing a more uniform format for the submission of accounts by companies to allow for automated checks and improve statistical analysis on accounts.  It is suggested that Companies House should explore the introduction of minimum digital tagging standards of accounts, and also that there should be a limit to the number of times that a company can shorten its accounting reference period.  This is because Companies House has identified that some companies are using the provisions to shorten their accounting reference period multiple times, reducing their accounting period by one day each time in order to gain additional time to file their accounts.

• Chapter 8 discusses the ability of searchers of the Companies House register to obtain information about who owns and controls companies where there is an exemption from the PSC requirements.  Companies with voting shares admitted to trading on a regulated market in the UK or EEA (and on certain other markets) are exempt. It proposes that Companies House should collect some further basic information which would enable third parties to obtain this information more easily.  This could include, for example, a ticker symbol or stock symbol which uniquely identifies publicly traded shares of a particular stock on a particular stock market.  This information would be shown on the Companies House register.  In addition, the Government proposes that Companies House should collect some basic information about the regulated market on which a "relevant legal entity" for the purposes of the PSC regime, is listed.  This information would also be shown on the register.

• Chapter 9 considers whether it is still appropriate to keep dissolved company records on the register for 20 years from dissolution.  The Government sets out its reasons for maintaining the current 20-year retention period of dissolved company records.

Part C: Protecting personal information

• Chapter 10 sets out proposals for how personal and protected information will be held and accessed in the future.  Companies House will collect more information about companies and their officers, PSCs and shareholders.  Some of this will be of a sensitive personal nature but will not be made publicly available.  

• Chapter 11 explores whether further protections are needed in certain circumstances to protect directors' information, as well as proposing that in some limited areas, less information about directors needs to be gathered in the future.  The Government believes current requirements on directors' names are fit for purpose and it does not believe there is any reason to change the provisions on service address and date of birth.  It also does not believe that there is any reason to change the provisions on residence and nationality but believes there may no longer be a case to ask for directors' occupation.  The Government does believe that directors should be able to apply to Companies House to have the "day" element of their date of birth suppressed on the register where this information was filed before October 2015.  Since then, director appointments publicly show only the month and year of a director’s date of birth and the "day" element is suppressed.  However, this is not the case with date of birth information filed before October 2015.  The Government also proposes that a person who has changed their name following a change in gender should be able to apply to have their previous name hidden on the public register and replaced with their new name.  It also proposes allowing suppression of residential address information provided the residential address is not a live company's registered office address or the registered office of the company at the time it was dissolved.  In addition, the Government proposes that there should be an administrative procedure which would allow individuals to apply to have their signature on paper forms delivered to Companies House suppressed.

Part D: Ensuring compliance, sharing intelligence and other measures to deter abuse of corporate entities

• Chapter 12 sets out the approach Companies House takes to compliance and enforcement.  It proposes the routine cross-checking of information on the company’s register against external data sets to obtain feedback from obliged entities on discrepancies identified.  It also proposes adopting a risk-based approach to the sharing of intelligence with law enforcement agencies and requiring companies to provide details of their bank accounts.

• Chapter 13 sets out proposals to deter the misuse of limited partnerships, company names and addresses and to limit the number of concurrent directorships that an individual may hold.  The Government believes it unlikely that a person could reasonably be considered to be performing their duties as a company director where they are holding large numbers of directorships and so is thinking of introducing a cap on the number of directorships an individual may hold concurrently but it does not specify the size of that cap.  It recognises that there may be circumstances in which such a cap should not apply.  One example it gives is where third party agents are setting up companies in their own name, in order to create companies swiftly for clients.  The Government also comments on certificates of “Good Standing” in respect of a company that can be ordered from Companies House.  It is contemplating a change of product which would reflect that the certificate represents statements of fact derived from information filed rather than a judgement that Companies House is making about the company.

Part E: Implementation

The final part of the consultation paper addresses implementation issues.  It notes that, if the proposals in the consultation paper are implemented, then there will be implications for Companies House operating model and approach and an impact on the fees levied by Companies House.

Next steps

Responses to the consultation paper are requested by 5 August 2019.  The consultation paper notes that in most cases, changes to the powers of Companies House will require primary legislation.  That fact, and the need for a programme of systems and staffing transformation at Companies House, will mean that these reforms will take some years to deliver and the Government will set out its next steps when it formally responds to the consultation.

(BEIS, Corporate Transparency and Register Reform Consultation, 05.05.2019)