Economic Crime and Corporate Transparency Act 2023: Radical reforms to Companies House and corporate liability for economic crimes – MyCyberBase

Overview of the reforms introduced by the ECCTA

The Economic Crime and Corporate Transparency Act 2023 (ECCTA), first laid in Parliament in September 2022, received Royal Assent on 26 October 2023. The ECCTA contains, among other things, amendments to the Companies Act 2006 to facilitate the transformation of Companies House. Its provisions will come into force at a later date to give companies, and Companies House, the chance to prepare. It will also introduce a new corporate offence of failure to prevent fraud.

The passing of the ECCTA follows consultations in 2019 and 2020, a white paper containing the government’s final plans for reform published in February 2022 and the laying of the draft bill in September 2022 (you can read more on the background to the ECCTA on our blog here). A number of significant amendments were made to the bill as it moved through the parliamentary process.

We have released a series of snapshots covering the different aspects of the reforms, and are hosting two webinars on the ECCTA (see below to register), to help companies prepare for the significant changes ahead:

• The transformation of Companies House – The ECCTA will result in the biggest change in the role of Companies House since it was created in 1844, turning it from a largely passive recipient of information to a much more active gatekeeper. Under the new Companies Act provisions inserted by the ECCTA, Companies House will be given the power to query any filings, to request further evidence and/or to reject any filings, and to remove material from the register more swiftly. It will also be able to require all information to be filed electronically.
• Identity verification – Identity verification requirements will be introduced for all new and existing company directors (and equivalents for other entities), people with significant control (PSCs) and those filing information with Companies House. UK company formation agents that register with Companies House will be able to conduct these identity checks. Directors and PSCs who do not verify their ID will commit a criminal offence and/or incur a civil penalty. Companies that have an unverified director will also commit an offence.
• Miscellaneous company administration changes – The ECCTA makes a number of changes to the administration of companies, designed to reduce compliance burdens and improve the quality of the information on the register.
• Limited partnerships – The ECCTA also contains provisions introducing registration and transparency requirements for limited partnerships. The changes follow reforms proposed in April 2018 by the government to UK limited partnership law to strengthen the legal framework and limit the risk of limited partnerships being used for illicit activities (see our corporate update 2018/9).
• Corporate criminal liability for economic crimes – The government has used the ECCTA to introduce a new strict liability corporate offence of failure to prevent fraud where a company does not have reasonable fraud prevention procedures in place. The ECCTA also amends the so-called ‘identification doctrine’ (where companies can be held criminally liable for the acts of their officers or employees if they represent the company’s ‘directing mind and will’ such that their actions can be attributed to the company concerned) for economic crimes.

In its February 2022 white paper, the government committed to commencing the ban on corporate directors (which was inserted into the Companies Act 2006 by the Small Business, Enterprise and Employment Act 2015 ). It is anticipated that this prohibition will be brought into force by one of the commencement orders under the ECCTA, which will also provide for a principles-based exception. For more details, see our snapshot.

Timing for implementation of the reforms

The provisions of the ECCTA will come into force at a later date to allow companies and Companies House time to prepare for implementation. In a blog post on the ECCTA receiving Royal Assent, Companies House noted that, whilst some of the measures in the ECCTA will need processes to be developed and secondary legislation before they can be brought into force, other measures can be brought into force sooner. These early-implementation measures include the power for Companies House to query or reject information filed with it, revisions to the company names regime and the requirement for companies to provide the registrar with an email address. Companies House anticipates that these early-implementation measures will come into force in “early 2024”.

On the economic crime changes, the amendment to the identification doctrine for economic crimes will take effect two months after Royal Assent (i.e. December 2023). The government plans to consult on guidance on “reasonable procedures” in relation to the new failure to prevent fraud offence in 2024, so it is not anticipated that the new offence itself will be in force before 2025.