What are the new rules?
The UK government has set out plans to reform governance at Companies House to stop manipulation of the service, particularly in the use of anonymous or fraudulent shell companies and partnerships.
Companies House is planning to ‘change its statutory role from being a largely passive recipient of information to a much more active gatekeeper over company creation and custodian of more reliable data’, said Lord Callanan, the Minister for Business. Furthermore, Companies House is also planning to change the accounts filing requirements for small and micro companies.
At the moment, the government have not yet announced a timeline for the introduction of the new rules. However, this is deemed a priority and will be part of the Economic Crime Bill. The government plan to simplify the framework by reducing the filing options to just two: micro-entities and small companies. Thus, removing the abridged and filleted accounts options, which should make the system easier to understand, reduce fraud and error, and increase transparency.
Furthermore, all small companies must file a profit and loss account, as well as a balance statement. This will ensure that key information such as turnover and profit or loss is available on the public register. Small companies will also be required to file a directors’ report.
Moreover, there will be a requirement to use full XRBL tagging of accounts information on the register. Companies House have confirmed that they will reject accounts that do not meet this standard.
The body has also clarified the requirement for a company to prepare and deliver just one set of accounts. This proposal closes the loophole where a company can file multiple accounts with different government departments.
As well as changes to the filing rules, Companies House are going to be granted more powers to question suspicious appointments or filings. In addition to this, they will be able to request further evidence or reject filings deemed suspect. Companies House will also have more extensive legal gateways for data sharing with law enforcement, other government bodies and the private sector.
Companies House are also implementing a system whereby anonymous filings will be harder to carry out. Those setting up, managing, and controlling companies and other registrable entities will have to have a verified identity with Companies House, or have registered and verified their identity via an anti-money laundering supervised third-party agent.
Those who fail to verify their identity or follow the new rules under these reforms will be subject to criminal and civil sanctions. The government is still considering the level of penalties, which could include director bans for breaking rules on company registration and misuse of registered addresses.
Companies House will have much more powerful analytical means to spot suspicious behaviour than ever before. Utilising this stronger data, it will then be able exercise its new querying power to obtain further information or report it to law enforcement if deemed appropriate.
The government also intends that corporate directorships will be restricted to UK-registered entities only. This is because ‘experience has shown that illicit activity is facilitated by multi-layered company control across multiple jurisdictions where the use of registered UK companies can give organised crime a respectable front behind which to pursue their activities’.
Why the need for reform?
Kwasi Kwarteng, Secretary of State had the following to say regarding the changes:
‘The agency will be transformed into a custodian of accurate and detailed information – ensuring that we can clamp down on those who seek to abuse UK corporate structures to launder money. Anyone setting up, running, owning or controlling a company in the UK will need to verify their identity with Companies House, who will then be able to challenge dubious information and inform the security agencies. Company agents from overseas will no longer be able to create companies in the UK on behalf of foreign criminals or secretive oligarchs.’