Economic Crime and Corporate Transparency Act 2023 - a year later

Caroline Clark, insolvency practitioner, director of RMCSC and a fellow of the Insolvency Practitioners Association and R3, reflects on the changes introduced by the Economic Crime and Corporate Transparency Act 2023, one year since its royal assent.

Introduction

The Economic Crime and Corporate Transparency Bill received the first of three readings in the House of Commons in January 2023 and, after much debate, the Economic Crime and Corporate Transparency Act 2023 (ECCTA) finally received royal assent on 26 October 2023.

This lengthy process gave plenty of opportunity for discussion about the planned changes to Companies House, a bastion of traditional procedure, and how this would work with the government’s stated aim to combat financial crime and money laundering.

There was a lot of interest in ECCTA from insolvency practitioners, solicitors, accountants and others who are subject to demanding anti-money laundering legislation and who would welcome changes that would make money laundering and financial crime harder to conceal. These people also work with Companies House as part of their daily routine, filing documents or using Companies House as a source of hopefully reliable information.

So, what progress has there been in the 12 months since ECCTA received royal consent?

What does the Economic Crime and Corporate Transparency Act 2023 aim to achieve?

ECCTA is comprised of five parts that will bring in changes to specific areas that are relevant to minimising financial crime and money laundering:

Reforming Companies House procedures and giving the Registrar of Companies new objectives and powers.
Bringing the law regarding limited partnerships in line with that for limited companies.
Introducing new provisions for the Register of Overseas Entities that was set up in 2022.
Changing the law regarding the seizure of crypto assets.
Making further changes to anti-money laundering legislation.

These changes are all in the context a growing amount of anti-money laundering legislation since the start of the 21^st century. Compliance with anti-money laundering legislation has been regulated since 2017 and it is possible to see the need for new legislation now affecting organisations such as Companies House as an indication both of the government’s commitment to tackle money laundering and financial crime and the overwhelming size of the problem faced.

What changes have been brought in by the Economic Crime and Corporate Transparency Act 2023?

S213 ECCTA requires the Secretary of State to present a report to Parliament about the progress of ECCTA within six months of ECCTA receiving royal assent. In May 2024 Kevin Hollingrake, then minister of state for enterprise, markets and small business, presented a report on action taken in the first six months of ECCTA. Interestingly S213 ECCTA only requires this report to cover the progress of the first three parts of ECCTA but the Companies House reforms in part 1 of ECCTA will be the highest profile. They are likely to result in changes that will affect everyone involved in the governance of a limited company as well as those who work with Companies House, and they are arguably the changes that will have most impact.

Future reports on the progress of ECCTA are to be paid before Parliament every 12 months until 2030, implying that ECCTA may not be fully operational for at least another 6 years.

The scale of the changes to be brought about by ECCTA should not be underestimated. Since the Economic Crime and Corporate Transparency Bill was first debated in Parliament it has been known that a lot of secondary legislation would be necessary to bring about the changes in ECCTA. The May 2024 report advises that 50 or more statutory instruments would be required, and 13 statutory instruments had been laid in Parliament by May 2024.

There have also already been changes that will improve the accuracy and reliability of information filed at Companies House. From 4 March 2024 Companies House has been able to review and query information sent to it to be filed and Companies House now has stronger powers to remove false, misleading or incorrect information.

Companies registered at Companies House now must have a registered email address and the rules for registered offices have been changed so that it must now be possible for the delivery of documents sent to the registered office to be recorded. This means that it is no longer possible for a PO Box to be used as a registered office, something used in the past as a way to make it difficult to contact a company.

It was reported in June 2024 that Companies House had corrected 800 false filings for 190 companies. It seems that someone working from an address in Northern Ireland had made all these filings to Companies House, stating wrongly that secured loans had been fully repaid. The Registrar of Companies used new powers from ECCTA to remove the incorrect filings and this is an excellent example of how important it is that Companies House can now review, question and remove information sent to it to be filed.

What is the future for ECCTA and Companies House?

Further measures are being brought in to improve confidence in the accuracy of information at Companies House and regular press releases advise of future changes. Identity verification is a key part of all anti-money laundering legislation and ECCTA will require authorised corporate service providers, such as accountants and insolvency practitioners who file documents at Companies House on behalf of others, to be registered with either HMRC, the FCA or the Gambling Commission.

Companies House advises that this identity verification will enable the Registrar of Companies to work more effectively with regulators and supervisory bodies. This leads onto further groundbreaking changes as the Registrar of Companies now has the power to proactively share information with law enforcement bodies such as the NCA and SFO, anti-money laundering supervisory authorities (which would include the ICAEW and the IPA), the Insolvency Service and other public authorities either to assist with the carrying out of their duties or to assist the Registrar of Companies.

Office holding insolvency practitioners are included among those with whom the Registrar of Companies may share information, and this could result in another change to the role of insolvency practitioners away from that of simply acting for the benefit of creditors by realising and distributing assets.

By the time of the second report on the progress of ECCTA, to be published by the end of May 2025, Companies House may well have completely changed from a reactive, traditional organisation that just receives, files and administers publicly available data to a modern organisation that is aware of money laundering risks and works to mitigate them. Companies House will receive, review and file publicly available data following systems to ensure that it is reliable, arranging for data to be corrected if necessary or rejecting false and misleading data, and proactively using the wealth of data available to it to assist in the fight against money laundering and financial crime.

It seems that it may not be possible to assess the final impact of ECCTA until 2030, but there is no doubt that after a year ECCTA has already brought in welcome changes.

About the author

Caroline Clark is an insolvency practitioner, director of RMCSC, and a fellow of the Insolvency Practitioners Association and R3. She established RMCSC in 2013, providing consultancy advice for insolvency practitioners about compliance with insolvency and anti-money laundering legislation, including Reg 21 audits.

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Economic Crime and Corporate Transparency Act 2023 (Legislation)

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Publication date

23 October 2024

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.