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Companies House given new powers to tackle fraud

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Companies House will be handed enhanced powers to clamp down on fraudulent organisations and verify company directors following the Economic Crime and Corporate Transparency Act receiving Royal Assent today. 

26th Oct 2023
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The Economic Crime and Corporate Transparency Act has finally passed the final stages of amendments in Parliament today (26 October), setting in motion the “most significant change” in Companies House’s history and finally tackling companies set up under fake “Donald Duck” identities. 

The government introduced the bill with the aim of improving transparency over UK companies and other legal entities after Russia’s invasion of Ukraine and the subsequent crackdown on “dirty” Russian money washing through the UK.  

The main changes introduced to Companies House as a result of the bill include identity verification for all new and existing registered company directors, people with significant control and those delivering documents to the registrar. 

The bill also includes measures that strengthen anti-money laundering powers, particularly around information sharing, and greater powers to seize and recover cryptoassets. 

The most significant change

Companies House chief executive Louise Smyth hailed the new powers as the “most significant change for Companies House in our long history”. 

“We have known for some time that UK companies have been misused by criminals to commit fraud, money laundering and other forms of economic crime and our thoughts have always been with those affected.

“We will now play a much greater role in preventing further abuse of the register. We will be taking unprecedented steps to crack down on fraudulent activities, help victims quicker and clean up the register by removing information we know to be incorrect.”

Companies House highlighted that the reform will support its efforts to improve the quality and reliability of its data.

What’s in the bill?

One of the headline new powers is enhanced verification checks. These checks will target criminals who register companies under fictional names such as Mickey Mouse or Donald Duck. Up until now Companies House had no powers to verify the accuracy of the information it publishes. 

The passing of the Bill will prevent those setting up companies under fake identities from hiding money behind these fictional names. 

The government said the new powers mean that the Registrar can become “a more active gatekeeper over company creation and custodian of more reliable data”. In practice these powers mean Companies House can check, remove or decline information submitted to, or already on, the companies register. 

In addition, Companies House will also be given more investigation and enforcement powers. The government noted that this includes the introduction of “better cross-checking of data with other public and private sector bodies”, which will enable the government agency to share information more effectively with law enforcement bodies.  

The Bill also has money laundering in its sights too. The main focus of the reform’s anti-money laundering efforts is enabling the flow of information in certain situations to help prevent and to investigate economic crime. The reform achieves this through disapplying civil liability for breaches of confidentiality for firms who share information to combat economic crime. 

It also removes the requirement for a pre-existing suspicious activity report to have been submitted before the National Crime Agency’s Financial Intelligence Unit can make an information order. 

The Bill was slow to progress through Parliament, taking over a year since the government first unveiled plans to introduce plans to stamp out “dirty money” in September 2022

Along the way a number of amendments were added, including new measures that hold companies liable if they profit from the fraudulent actions of their employees. In addition, new measures that protect defendants when hit with Strategic Lawsuits Against Public Participation (SLAPPs). 

Accountancy profession reacts to the news

The reform of Companies House getting the green light from Parliament was welcomed across the accountancy sector. 

Reacting to the news Glenn Collins, the head of technical and strategic engagement at the Association of Chartered Certified Accountants, said “integrity of corporate information is vital in a modern, open economy” and “to support business decisions UK businesses need to be confident the companies register has reliable and complete information”.

Meanwhile, Robert Mudge, the executive director of regulation at the Institute of Chartered Accountants of Scotland, called the new powers a “welcome step forward”. He added: “This legal update is crucial in enabling registrar to keep up to date with fast-moving digital technology protecting individual and businesses against fraud.”

The Institute of Chartered Accountants in England and Wales’s Mike Miller also added his voice in support of the reforming of Companies House, saying that the institute has “long campaigned for these important reforms to improving the quality of information held on the register”. 

He added: “It’s vital for both the business community and the public interest that the platform contains accurate and verified company data, and these changes should achieve this.” 

Replies (25)

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By GHarr497688
26th Oct 2023 18:37

This is good as too much incorrect information held by companies house not verified however is this even more work for the Accountant as I read an article saying all data on names and addresses would need verifying back to passport or driver licence - is this the case ?

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Replying to GHarr497688:
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By steve.oldham
27th Oct 2023 10:27

Sounds like similar requirements to those introduced in Ireland recently. There, when filing accounts & annual returns, all directors and officers need to be identified either via their Irish tax reference number, or for non-Irish resident officers a notarised ID check allows a Declaration of Verified Identity (VIF) number to be issued which is then required for all filings.

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Replying to GHarr497688:
David Winch
By David Winch
27th Oct 2023 11:06

I understand that what is under consideration is some sort of biometric check and use of photo ID already held by the government (i.e. that held in relation to passports and driving licences). So - fingers crossed - if the director / PSC already has a passport or driving licence and has a mobile phone and internet access it should not be too difficult for them to confirm their ID to the satisfaction of Companies House. (That ID process would not involve their accountant.)
It would be useful if then we, as accountants, could rely on that ID confirmation from Companies House for our own AML purposes.
At worst it should create little or no extra work for accountants as we all already confirm the ID of company directors and PSCs.

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By Justin Bryant
27th Oct 2023 08:55

DN did an excellent piece on this problem (that I commended here previously). https://www.taxpolicy.org.uk/2023/07/13/robot/

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By hiu612
27th Oct 2023 10:28

I'm pretty sure Companies House don't want these powers. I seem to recall they've previously said that they're a registry and not a regulator. And that to become a regulator they need much greater budget and scope. So this might be like having plenty of aeroplanes but no pilots to fly them.

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Replying to hiu612:
David Winch
By David Winch
27th Oct 2023 11:01

I understand that some government money is to be made available to Companies House - and of course fees for registering companies and filing confirmation statements may be increased.

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Replying to davidwinch:
John Toon
By John Toon
27th Oct 2023 11:29

The consultations and various white papers regarding this suggested that fees wouldn't change, however it seems that some small fee increases are now expected as compliance costs increase, with additional funding to be provided to allow CoHo to undertake this new role. There is also expected to be an acceleration of the removal of the remaining paper forms/cheque payments required.

In fairness, much of the changes should be reasonably easy to deal with given CoHo will now have access to various databases to verify individuals who have interacted with some form of government service. It'll be interesting to see how the changes affect agents, like accountants, and how verification of overseas individuals/PSCs works, with the lack of equivalent corporate databases publicly available.

Also, many of the changes still need secondary legislation or time to be implemented so it's going to be a few months yet before we see this new, more effective CoHo, in action fully.

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Replying to johnt27:
David Winch
By David Winch
27th Oct 2023 11:38

johnt27 wrote:

Also, many of the changes still need secondary legislation or time to be implemented so it's going to be a few months yet before we see this new, more effective CoHo, in action fully.


I would think you're being a tad optimistic with "a few months"!
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Replying to davidwinch:
John Toon
By John Toon
27th Oct 2023 11:53

Probably, but that is from the horse's mouth!

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Replying to hiu612:
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By rmillaree
27th Oct 2023 13:55

"I'm pretty sure Companies House don't want these powers"

What is shocking is that they are happy to assist fraudsters by not verifying data when it is presented to them. So ignoring extra powers they should have being doing basic checks to ensure that if registered office address is used that choice has been made by someone at that address and not some fraudster - thats basic duty of care to everyone imho that they have not done - they may blame others but no person in charge of companies house should have tolerated fake registered office addresses being used while they were in charge - find a way or give an ultimatum and move on so its clear that next person would be negligent if they took up the role. Would have been so easy to do this basic check 15 years ago - reality is peeps at top clearly dont care about mass fraud end of.

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By 0118295
27th Oct 2023 10:42

It is arguably too easy now to set up a new limited company, so this change probably makes sense.
And once CH has done all its due diligence, then surely banks and other financial organisations should be able to simplify their account opening processes, safe in the knowledge that CH has done the work for them.
Then they might remember that they are there to serve customers rather than regulators. Anyone tried to open a bank account for a SME or small non-profit lately?
My concern is that the they will give themselves even more powers as, do all buraucracies.
Having been a business owner since 1979, I now have to spend over half my time on regulatory matters, rather than growing the business.

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Replying to 0118295:
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By johnjenkins
27th Oct 2023 11:01

I've always wondered, given how difficult it is to open a bank account for a bone fide business, how these "Mickey Mouse" companies manage to get bank accounts so enabling them to commit the purported ML.

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Replying to johnjenkins:
David Winch
By David Winch
27th Oct 2023 11:11

I was once phoned up by someone who said, "I need some advice on how to commit a fraud". It turned out to be a BBC researcher working on a plot line for Eastenders in which one character defrauded another. (Yes, really - I checked.)
Anyway John, the way to open a dodgy bank acccount is .... (I will PM you).
David

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Replying to davidwinch:
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By johnjenkins
27th Oct 2023 11:55

Funnily enough I get asked how these scammers get the genuine information needed to scam. To me it's not rocket science.

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Replying to 0118295:
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By johnjenkins
27th Oct 2023 11:58

What are the chances that CH, like Solicitors, Estate Agents and others use a third party for verification and that's where the Government money will go.

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Kirsty image
By Kirsty McGregor
27th Oct 2023 11:36

I wonder if the impact of filing a profit & loss account will upset some small company owners so much that they return to an unincorporated entity - and take the negatives which may come with that?

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Pile of Stones
By Beach Accountancy
27th Oct 2023 11:38

20 years too late. Mind you the jobsworths at Companies House might now actually have to do some work.

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By B-free2016
27th Oct 2023 11:56

Way too late!!
Taxpayers are footing the bill for their negligence.
Professionals in the industry of insolvency and IVA have all got at least another company in another area. Their solicitors are all auctioneers with another few. Target the big dogs first like Mazars

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By Arcadia
27th Oct 2023 12:15

I foresee a massive increase in registrations over the coming months as the fraudsters get a nice stock of companies ready for the future.
There seems to be nothing being done about existing companies. Steve.Oldam mentions the change in Ireland which requires identification for filing accounts and returns - we need that too don't we?

The measures still won't affect phoenixing where people set up perfectly legitimate companies in their own names, but just don't pay over their PAYE and VAT and CT, and just get a striking off if HMRC are getting closer. This problem is I agree in HMRC's bailiwick more than Companies House.

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Replying to Arcadia:
David Winch
By David Winch
27th Oct 2023 12:44

Arcadia wrote:

I foresee a massive increase in registrations over the coming months as the fraudsters get a nice stock of companies ready for the future.
There seems to be nothing being done about existing companies.


The new ID provisions will apply to existing company directors and PSCs, see s43 and s64 of the new Act.
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By rmillaree
27th Oct 2023 13:48

whats really frustrating is companies house's prior refusal to even do basic checks - for example they should alwasy have checked that an address was real and being occupied before allowing that to go on the public record. I think memmbers of the public shoudl awalys have expected that random company should not be able to turn up at their address without their approval - simple code sent to registered office addy similar to authentication code reminders would have avoided much hassle. Its shocking that they ahve not acted before now at that most basic level. particualrly when that data is made avaailable to all and sundry to alow harrassment (if fraudester has used their address)

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Replying to rmillaree:
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By johnjenkins
27th Oct 2023 15:08

In the past, historically, it was deemed that most people were honest so this hypercheck thing wasn't necessary. However in this modern age of high tech, scammers and fraudsters, values have ground to an all time low.

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By flightdeck
27th Oct 2023 13:52

decades overdue

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By GDavidson
27th Oct 2023 18:32

It's a beginning. But there need to be far stronger sanctions against non lodging of accounts (striking off after 3 months) and a return to proper full accounts for small and medium companies. It's just a joke what they are allowed to get away with.

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Melchett
By thestudyman
28th Oct 2023 11:42

Better late than never. Hopefully it will allow for companies to be struck off or fake directors removed if they cannot provide verification of details.

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