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Article:

Directors’ identities to be verified by Companies House

16 July 2019

The main proposals of the Department of Business, Energy and Industrial Strategy (BEIS) consultation on “Corporate transparency and register reform” focus on “Knowing who is setting up, managing and controlling corporate entities” as well as improving the quality of the data held on the Companies Register and protecting it from abuse. It is proposals on verifying the identities of directors and ‘persons with significant control’ (PSCs) that are likely to be of most practical concern to companies.

Verifying identities

Although the first question of the consultation asks whether or not “Companies House should have the ability to check the identity of individuals on the register?”, given recent security trends and the advantages listed in the document, it seems highly likely that this will happen. However, BEIS does recognise that this will slow down the registrations process: as all providers of professional services know, verifying identities of individuals at the start of the client relationship can be time-consuming.

The consultation envisages verifying the identities of all individual directors, PSCs and people connected with the company who file information about it (ie agents). Of course, agents and advisers who help companies with their registration and filings should already have verified the identity of relevant directors as part of their client take-on procedures as required by the Money Laundering Regulations. Therefore, Companies House only proposes to check identities where companies are registered direct with Companies House. However, it will also want more details about third party agents (eg their AML supervisory body and AML registration number) to be able to check up on their due diligence procedures. It may also require agents to notify Companies House of potential “anomalies” in its register.

While it is clear that identity verification would apply at the registration of a new company or the appointment of a new director, the consultation asks whether similar rules should be applied to existing directors (6.7m individuals). Clearly, a level playing field would be the fairest approach but it would place new administrative burdens on every UK registered company for at least the first Companies House return after the reforms are introduced.

Where Companies House does the identity check, it will be done through online cross-referencing to known data sources such as the electoral roll, Land Registry and credit reference agencies (although Companies House will have to share directors’ address data with these data providers to complete such checks).

Controls

The document suggests that until an individual’s identity has be verified, an appointment as a director will not be valid. For PSCs, BEIS recognises that verifying their identity could prove to be a significant burden for the company and its directors so its initial proposal is to apply a duty on the PSC to prove their own identity to Companies House when they pass the control test or (potentially) face a criminal sanction for failing to do so. Similarly, for third parties submitting details for companies, the consultations suggests giving Companies House the power to refuse a registration where the agent’s identity is not verified. It also suggest that it be given the power to query data and ask for evidence before placing entries on the register.

Further reforms for transparency

For transparency reasons, the consultation suggests identifying and reporting the number of directorships held by each individual. It also asks whether there should be formal limits on the number of directorships any one person can hold!

The consultation suggests that records of shareholders for each company should be collected covering all shareholders for non-listed companies and all shareholder holding 5% or more of a listed company. Going further, it questions whether verifying the identities of shareholders could be beneficial.

For the companies themselves it suggests imposing minimum tagging standards for company accounts submitted and limiting the number of times that a company can shorten its accounting reference date. There is a suggestion that the records of dissolved companies stay on the register for 20 years after dissolution. For continuing companies, the consultations questions whether collecting bank account details would add transparency and if companies should provide evidence that they are entitled to use their registered office address.

Progress

While it may be some time before these proposed reforms are implemented, it is already clear that there will be a higher level of corporate transparency in future: but this will come at the cost of additional administrative burdens for companies and their agents.

For help and advice on any company secretarial issue, please contact Mike Hutchinson.

Read the full consultation Corporate transparency and register reform.

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