Companies House Reform: Stopping Money Laundering. Find out how the changes will impact you and your business!

Parliament has scrutinized Companies House registration regulations, the British equivalent of Poland's National Court Register (KRS). The goal, inspired by events in Ukraine and their consequences, is to combat economic crime in its broadest sense. Unfortunately, this involves, among other things, the elimination of abridged or simplified financial statements that micro and small enterprises could previously use. From now on, all companies will be required to submit profit and loss statements (P&L).

Russia's attack on Ukraine is a large-scale humanitarian catastrophe. A series of sanctions have been imposed on the aggressor and Russian oligarchs, and many countries have begun to consider anti-money laundering regulations. Consequently, improving tools for identifying and eliminating suspicious financial activities has become an urgent matter. The United Kingdom has developed the necessary changes and, in light of the international situation, has accelerated their implementation.

Publication of the White Paper (White Paper)

On February 28, 2022, the so-called White Paper was published, a government report on corporate transparency and register reform. It outlined a plan for changes to be introduced at Companies House to support reforms aimed at reducing fraud and preventing the use of British companies and partnerships for international money laundering. The White Paper is accompanied by a draft Economic Crime Bill.

Proposed changes

The proposed changes include:
- reform of the current role and expansion of the powers of the Registrar of Companies;
- identity verification and other anti-money laundering (AML) measures;
- improved data exchange;
- optimization of financial information contained in the register;
- enhanced privacy protection mechanisms;
- new restrictions concerning company directors.

Greater powers for Registrars

Registrars will be granted new powers, enabling them to ask questions and request additional evidence regarding filings or changes that appear suspicious. In some cases, they may reject a filing. The scope of these new powers will cover all information – both new and already in the register. If an inquiry is made, the entrepreneur will have 14 days to respond and provide supporting evidence. The Registrar may extend this deadline.
Registrars are also tasked with ensuring the transparency and integrity of the register, and as such, will have the right to remove materials that compromise this integrity. Some documents filed with Companies House carry legal implications, so the removal of such documents will, in most cases, be carried out by a court. As part of the reform, Registrars will also have new capabilities for searching and sharing information with other authorities. They will also be able to impose fines on directors who fail to fulfill their duties.

 Identity verification and other anti-money laundering (AML) measures

Most individuals forming companies or filing documents will be required to undergo identity verification. If verification is not completed, a corresponding note will appear in the register. Agents filing submissions with Companies House on behalf of clients will be obliged to demonstrate that they are under appropriate supervision. The evidence provided will be compared with information from HMRC (tax authority) and the Financial Conduct Authority. This will prevent foreign agents from accessing Companies House. Decisions regarding access in some cases will be governed by separate legislation.

 Streamlining data exchange

Companies House will be granted greater powers to exchange data with law enforcement agencies, other government bodies, and the private sector. Under specific conditions, Registrars will be able to share crucial information with law enforcement, other public and regulatory bodies, including the Electoral Commission, and anti-money laundering supervisory authorities.

Optimizing financial information in the register

Financial statements will only be able to be filed as a single set, while the methods for filing them have been simplified. This aims to achieve more consistent financial information across various datasets, such as those at Companies House and HMRC. The information provided by businesses will need to be accurate enough to easily determine its accounting category (this is intended to make it harder to file reports under the wrong system to conceal income levels). Information will also be much easier to find thanks to digitalization and iXRBL tagging (Inline eXtensible Business Reporting Language an international standard that allows for the delivery of both human-readable data and structured, machine-readable data in a single document).

From the perspective of micro and small business owners, the most significant impact is the announcement of the elimination of the option to file abridged and simplified financial statements. This is intended to reduce fraud and errors and increase transparency. All small companies (including micro-entities) will be required to file a profit and loss account. Small companies will also need to file a directors' report, unless they meet the thresholds for micro-entities. Dormant and small companies will be required to submit sufficient information to verify their eligibility.

New restrictions on company directors

Companies will be required to have at least one fully verified natural person directly associated with the entity on the company register. Furthermore, only one "layer" of corporate directors will be permitted within a company's organizational structure, and all must be based in the UK. These restrictions aim to make it more difficult to create anonymous corporate structures. Currently, entire companies can act as directors, provided there is at least one natural person on the board, which leads to uncertainty about who truly exercises actual control over the company. As part of the reform, two conditions will be introduced:
- all company directors must be natural persons;
- natural persons already holding directorships must undergo an identity verification process.
There are more such legal measures.
Different rules will apply to Limited Liability Partnerships (LLPs) or corporate general partners of Limited Partnerships (LPs). Corporate members or corporate general partners must provide details of a natural person holding a senior management position, whose identity must also be verified. The government will consider whether further restrictions are necessary regarding corporate members of LLPs or corporate general partners of LPs.

Sources:
https://companieshouse.blog.gov.uk/2022/03/03/what-the-economic-crime-transparency-and-enforcement-bill-and-the-corporate-transparency-and-register-reform-white-paper-means-for-companies-house/
https://www.gov.uk/government/news/government-takes-landmark-steps-to-further-clamp-down-on-dirty-money
https://www.icas.com/news/corporate-transparency-and-companies-house-reforms
https://www.accountingweb.co.uk/business/finance-strategy/small-companies-lose-privacy-in-company-law-reform?utm_medium=email&utm_campaign=AWUKPOTW160322&utm_content=AWUKPOTW160322+CID_b709bce0a9d9427b654d06f6c49d58b8&utm_source=internal_cm&utm_term=Small%20companies%20will%20have%20to%20file%20PL%20accounts