Companies House reforms give power to clamp down on fraud

In December, the UK government launched three consultations to support Companies House reform aimed at preventing fraud and money laundering. Both of these criminal activities threaten to compromise the integrity of the UK’s financial system and global reputation, with reforms aimed at improving the quality of information on Companies House required immediately.

The proposed changes are wide-ranging, namely: 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. If these changes are ratified, directors will not be able to be appointed until their identity has been verified and the registrar’s powers will be increased so that it can query, investigate and remove false or inaccurate information.

Both the accountancy sector and businesses will also be affected by reforms to the filing regime, with proposals including shorter filing deadlines and changes to the nature and format of the information companies have an obligation to provide.

The broad package of reforms has been championed by the sector, not least the IFA. After all, if the aim of the proposals is to help improve business transactions and tackle economic crime, then we say the sooner, the better.

Responses to the consultation will be reviewed by government, but assuming the reforms remain largely the same, what could they entail?

Improving the quality and value of financial information

The first of these planned reforms will provide Companies House with a more effective means of assisting the government’s broader efforts to combat fraud, tax evasion and other forms of economic crime by improving the integrity of the information made publicly available about companies and other business entities.

Simultaneously, the proposals highlight a move towards adopting a “file once” approach, enabling filed information to be shared as appropriate 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.

Powers of the registrar

This consultation addresses how Companies House should implement its proposed new, discretionary powers so that the registrar is no longer obliged to accept documents where there is a reason to query any information contained in them.

Although the issues are rather broad, they are underpinned by the key objective to improve reliability of information on the register, alongside the drive to target criminals who misuse corporate structures.

Implementing the ban on corporate directors

The third consultation focuses on ways to implement the proposed ban on corporate directors of UK companies, unless their own directors are all ‘natural persons’ (i.e. actual human beings), whose identities have been verified by Companies House. This seeks to challenge unlawful activity by those who abuse the role of corporate director to prevent individual accountability.

Although the power to prohibit corporate directors is nothing new, it has yet to be implemented, with the government suggesting this should now be done in conjunction with the Corporate Transparency and Register Reform.

A step in the right direction

While the IFA is supportive overall, we did query 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.

In IFA’s response to the consultation, we were of 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 appreciate 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, 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 at large.

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