What this is: An overview of the newly introduced Economic Crime and Corporate Transparency Act, 2023 (ECCTA), which enhances the regulatory framework against economic crimes and bolsters corporate transparency in the United Kingdom.
What this means: ECCTA empowers Companies House with greater oversight of company information, enforces stricter identification measures for directors and significant persons and heightens accountability for larger organizations. The Act also introduces reforms in the operation of UK Limited Partnerships (UKLPs) and strengthens regulations around the misuse of cryptocurrencies.
On October 26, 2023, the much-anticipated and much-deliberated Economic Crime and Corporate Transparency Act, 2023 (ECCTA) received its royal assent. This follows important legislation which was passed in August 2022, The Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA), both focusing on prevention of economic crimes and improving Corporate Transparency in the UK.
Among other things, ECCTA grants unprecedented powers to Companies House as a regulator and a gatekeeper of UK registered companies/partnerships and their information. Following this, we can expect a series of reforms from Companies House, some will be early stage reforms and others will require secondary legislation (or system changes) to be implemented.
Starting in 2024, we can expect more queries from Companies House on documents/information submitted to them. Companies House will have the power to scrutinize and reject information that seems incorrect or inconsistent with information already on the register. In some cases, they will be able to remove information already registered. There will be stronger checks on company names and registered office addresses for all companies (to ensure that it is not simply a PO Box address). There will also be a requirement to supply email addresses for all registered entities.
Another much-awaited change is the implementation of stricter identification measures for directors, Persons with Significant Control (PSCs) and Relevant Legal Entities (RLEs) and stricter director disqualification rules.
Although the identity verification rules are yet to be confirmed, it is expected that Companies House will roll out digital verification methods whereby identity of an individual can be confirmed against their primary identification document. Alternatively, there will be an indirect route of verification through an Authorized Corporate Service Provider (ACSP). ACSPs are intermediaries such as accountants, legal advisers and company formation agents who are registered under the Anti-Money Laundering (AML) regulations.
One of the key aims of ECCTA is to make it easier to identify and prosecute companies, partnerships and senior managers for economic offenses and failure to prevent fraud. This will apply to larger organizations who meet 2 of the following 3 thresholds: (i) More than 250 employees; (ii) more than GBP 36 million turnover; and/or (iii) assets of more than GBP 18 million.
The legislation seeks to include “senior management” who direct a substantial part of a company’s activities as being responsible for the offense and not just the directors.
The ECCTA announces major overhaul of the limited partnership law which applies to all UKLPs, including private fund limited partnerships. The implementation of these UKLP changes will require a secondary legislation and there is likely to be a transitional phase before implementation.
Pursuant to ECCTA, all UKLPs will be required to demonstrate a UK connection through its principal place of business in the UK country of their incorporation. Alternatively, a UKLP may use the address of an ACSP to fulfil this requirement.
Companies House will require an LP to provide more details of its Limited and General Partners (GP), depending on whether they are an individual or an entity. In addition, each GP that is an entity will also be required to name a “registered officer” whose identity is required to be verified and who is not a disqualified person under directors’ disqualification rules.
UKLPs will be required to file annual confirmation statements every year confirming that the information in the register is correct in addition to notifying the changes to the LP as and when they occur. HM Revenue and Customs (HMRC) may also require the GP to file its audited accounts.
Another major change is in the manner of delivery of documents to Companies House. LPs will be required to submit all documents through an ACSP and not directly by the GPs.
ECCTA also introduces some important changes to the Register of Overseas Entities (implemented by ECTEA) to identify the true beneficial owners of UK property where complicated structures are used to own UK property.
Finally, ECCTA brings in some controls around misuse of crypto assets and cryptocurrencies. This includes confiscation of crypto assets and civil recovery powers.
What is the difference between ECCTA and ECTEA?
While the ECTEA (2022) focuses on increasing transparency for overseas entities owning property in the UK, the ECCTA (2023) broadens the scope to include more comprehensive reforms targeting economic and financial crimes, along with transforming Companies House to better address these challenges.
The Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) introduced in 2022, primarily established a new register of overseas entities at Companies House. The main goal of the ECTEA was to increase transparency in the ownership of property in the United Kingdom by overseas entities. It requires overseas entities owning qualifying estates to register with Companies House, including identifying and disclosing their beneficial owners and people with control. This legislation aimed to make the ownership of property in the UK by overseas entities more transparent. You can read more about ECTEA in our article, 5 Important Questions About New UK Requirements for Overseas Entities in the UK.
The Economic Crime and Corporate Transparency Act 2023 (ECCTA), passed in 2023, builds upon the ECTEA and introduces broader amendments. The ECCTA includes various changes to the previous act and amends the Companies Act 2006 to facilitate the transformation of Companies House.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.