UK to verify ID of directors in company register reform

Out-Law News | 21 Sep 2020 | 3:27 pm | 2 min. read

The UK is to reform its register of company information in a bid to combat fraud and money laundering, with new measures including compulsory verification of directors’ identity.

Under the proposals Companies House will gain more powers enabling it to query, investigate and remove false information. Directors will not be appointed until their identity has been confirmed through a digital process that the government said would take “a matter of minutes”.

The Department for Business, Energy and Industrial Strategy said the changes aimed to increase the reliability of the data showing who is behind each company, so that businesses have greater assurance when they are entering transactions with other companies.

The proposals are included in the government’s response to the Corporate Transparency and Register Reform consultation (97 page / 680KB PDF) which ran between May and August last year.

Civil fraud expert Andrew Herring of Pinsent Masons, the law firm behind Out-Law, said the government had said “the volume of economic crime in the UK is immense and growing”.

“Fraud by and on companies is at an all-time high, with victims of corporate fraud often left to take civil litigation action as an effective remedy to recover their losses. Regrettably, the abuse of company incorporation to facilitate financial crime and fraud has been one factor in this growth,” Herring said.

“Criminal-backed companies and the bank accounts opened in their names can become a front for defrauding other businesses and creditors. Limited company status may lend an aura of respectability to the disreputable. Any practical measures that can be quickly implemented to reduce the shortcomings in the current system of incorporation are to be broadly welcomed in the fight against fraud,” Herring said.

Corporate governance expert Tom Proverbs-Garbett of Pinsent Masons also welcomed the proposals, although he said there were still issues to be ironed out before they could be brought into effect.

“The proposals to introduce compulsory identity verification for all directors and people with significant control (PSC) of UK registered companies continues the original push for transparency that underpinned the introduction of the PSC regime. However, plans for identity verification sharing between agents of companies and the registrar at first glance have a number of regulatory and practical hurdles to overcome before sharing information is as easily done as the government hopes, importantly, without markedly slowing down the process,” Proverbs-Garbett said.

Proverbs-Garbett said the government had rejected the idea of verifying shareholders’ identity, after respondents to the consultation raised concerns that this could disproportionately burden minority shareholders that are individuals, outweighing any transparency benefit.

“Although there were arguments in favour, it emerged that most respondents had not appreciated that the information would be restricted. The burden on business was also an issue, especially where there is a high volume of share turnover,” Proverbs-Garbett said.

“Hand-in-hand with the proposals for enhanced verification for officers and controllers of companies, there is renewed emphasis on protecting personal information. The process for removing personal details from the register will be simplified. Directors' occupations will no longer be logged, and it will be permissible to remove legacy information. This will be of comfort, in the context of cybercrime risks, to those individuals with personal addresses still accessible on the register,” Proverbs-Garbett said.

In addition to identity checks for directors and other PSCs, the reforms will introduce a requirement that any agents making Companies House filings must be “properly supervised”, and show evidence that they have verified directors’ identities.

The government is also to reform the powers of the Registrar of Companies to allow her to query information submitted to Companies House, and broader the registrar’s powers to remove information from the register.

Bodies falling under anti-money laundering regulations will have to report discrepancies between Companies House and information they hold on their clients. It will also be possible to cross-reference Companies House data against other datasets.

Further proposals include the ability to strike limited partnerships off the register following a court order and giving Companies House the power to query and possibly reject company names before they are registered.

The government said it would bring forward legislation to enact the reforms to the register when Parliamentary time allows.