corporate transparency and register reform: Government response now published

Compulsory identity verification is proposed for all:

• Directors of companies;
• People with significant control (PSCs); and
• All individuals who file information on behalf of a company.

It is also noted that all general partners in limited partnerships and designated members in limited liability partnerships will need to have a verified account at Companies House. The Government envisages that most individuals will be able to verify their identity digitally in a matter of minutes. However, they acknowledge that to meet everyone’s diverse needs there will need to be a combination of document-based verification (e.g. driving licences, passports etc.) and knowledge-based verification.

In a marked shift from the current approach, in the case of company directors their appointment will not have legal effect or be shown on the register until the account has been set up and identity verified. Some companies are likely to have provisions in their articles of association and/or shareholders’/investment agreements which seek to perfect an appointment on the service of a notice to the company (rather than on registration at Companies House) – such provisions are likely to need reviewing once further details on this proposal are published.

However, it is noted that “it will be possible to create an account and verify an individual in advance of registering an appointment as a director” or in advance of an incorporation (if someone is being appointed as a director at the point of incorporation). Once a director is verified and appointed for the first time, they will have a verified individual account at Companies House. All subsequent appointments will be made using this account – irrespective of role or company. This will hopefully mean that the appointment of a director who already has a verified account at Companies House can be registered and confirmed very quickly. Having a single user account also means that those holding multiple roles in the same or multiple companies can be properly linked. The Government has favoured this approach over issuing unique identifiers/reference numbers.

For PSC verification, Companies House will make verification of PSCs compulsory and flag on the public register if they have or have not been verified. PSCs will be responsible for verifying their own identity and Companies House will ensure that if an individual has already been verified (for example, if they are a director - as noted above) then they do not need to do it again. It remains to be seen what communications will be published by Companies House to ensure PSCs are aware of their new obligation to verify their identity at some point in the future. It has been noted that failure to verify will be an offence – and it is anticipated that sanctions will be line with those for existing PSC offences. The Government will further consider how these principles apply to companies owned and controlled by legal entities, as opposed to individuals.

The Government is considering developing an identity verification regime that allows the filing of information by agents on behalf of a company, without the need for individuals who are directors or PSCs to verify their identity under the Companies House process. An agent will be able to apply to Companies House to open a verified account for those individuals, and Companies House will not duplicate identity checks where they have been carried out by third party agents as part of the customer due diligence process.

In future, AML-supervised entities who make filings on behalf of multiple companies will have the option to set up an “agent account” that they can use to file on behalf of all companies they act for – this will involve providing further information to Companies House, such as to confirm that the body is AML registered and to provide details of their AML supervisory body. Individuals filing under verified agent accounts will not need to separately verify their identity – which should assist law firms, accountants and company service providers who act on behalf of many different companies.

The new identity verification requirements will be applied to all live registered companies and their agents (and there are currently approximately 10 million existing directors and PSCs on the register that will need to be verified). There will be a transitional period where current PSCs and directors will be allowed to carry on their current role and open a verified account with Companies House. Once this period has expired, unverified individuals will face compliance action and possible prosecution. Concerns have already been raised about the possible adverse effect on board decisions and the legal status of directors depending on how the compliance regime is implemented. It is suggested that annual confirmation statements could be used as a means of prompting identity checks as a practical way of spreading out this task throughout a calendar year.

At this point the Government does not intend to introduce identity verification for shareholders – however, the Government proposes to take forward action to require companies to provide full names of shareholders and will look to improve the format of the information by allowing users to easily inspect a full list of shareholders. It is proposed that this list will be updated annually at the company’s confirmation date. This will hopefully be a welcome improvement on the present situation - where obtaining a comprehensive picture of current shareholder information can often require research through a number of historic filings. However, introduction of this facility may require every company to file a full, one-off shareholder list.

Companies House aims to have finalised a system design for identity verification and to start user testing by the end of the 2020/21 financial year.

The Registrar of Companies will have wider powers to query information submitted and will also have broader powers to remove information in certain circumstances to enhance the accuracy of the register. At the moment, often a court order is required to make changes to a company’s record at Companies House, which can be time consuming to sort. Where the validity of information has been called into question, the onus will be on the company that has filed it to evidence any objection to an amendment.

The responses to the consultation showed there was a lot of support for wide reform of company accounts – and as a result the Government is now considering reforms that go further than initially envisaged. It intends to consult further on more detailed proposals in due course. For example, the Government will be consulting on proposals to introduce full iXBRL tagging for the submission of accounts to Companies House and also review certain aspects of accounts filing - including exemptions that allow companies to submit micro or dormant accounts.

The Government response sets out the intention to reform the rules for shortening accounting reference periods (ARPs) to reduce potential for abuse – it appears that companies will only be able to shorten their accounting reference period once in a five-year period and the legislation on extending ARPs will also be reviewed to ensure a consistent approach. Where a company cites aligning its ARP with a parent or subsidiary, Companies House will in future request the name and company number of the parent/subsidiary.

The Government plans to introduce an obligation on bodies that fall under the AML Regulations to report discrepancies between the information contained on the public register of companies and the information they hold on their customers. This builds on the beneficial ownership discrepancy reporting requirement introduced in the Money Laundering and Terrorist Financing (Amendment) Regulations 2019.

The Government will put in place 'legislative gateways' to permit the cross-referencing of Companies House data against other data sets. Companies House will work with other agencies to create the systems required to achieve this.

The Government will create a process under which limited partnerships can be “struck off” following a court order. The process will aim to balance the need to deter criminal activity while protecting the interests of innocent parties in the limited partnership.

Companies House will have enhanced powers to query and possibly reject company names before they are registered. The Government will also review, and consider strengthening, the powers that are available to remove a company name once it has been registered and will review the role of the Company Names Adjudicator.

The Government will reform how (and in what circumstances) Companies House issues certificates of good standing – the Government does not envisage that this will require legislative change.

Companies will be required to provide additional information to evidence where they or their owners are exempt from holding a PSC register under Part 21A of the Companies Act 2006 – for example, public companies that are traded on regulated markets like the FTSE100 and are required to disclose their ownership/control under the markets listing and transparency rules may need to provide details of the regulated market and listing.

It is confirmed that Companies House will continue to retain company records for 20 years from the date of dissolution of a company and the Government intends to progress certain reforms to ensure more robust privacy protections for personal information. Once these are in place, the Government will make 20 years dissolved records freely available on the register. Until that point, Companies House will make dissolved records since 2010 freely available. Dissolved records before 2010 can only be accessed through certain Companies House products (for which a fee is generally payable).

In order to protect personal information, Companies House no longer intend to ask directors to list their occupation and will set up a process for individuals whose profession is shown on the public register to have that information suppressed.

The Government intend to introduce a process whereby individuals can request to have their signatures, the day of date of birth (where first filed prior to October 2015) and residential addresses, where it has been used as a company’s registered office, suppressed from the register. Where signatures on historical documents are suppressed Companies House will annotate the register to reflect this.

The Government is still considering how to take forward the proposal to allow a person who has changed their name following a change of gender to apply to have their previous name hidden on the register.

In response to issues raised by respondents, the Government will also consider whether the suppression of a name may be appropriate in other cases where individuals are at risk of harm and sufficient evidence can be provided, for example victims of domestic violence.

Information that is suppressed as a result of these new measures will be stored securely at Companies House and will be available to law enforcement agencies.