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.