Companies House reform – new identity verification
As part of the Government’s reforms to increase transparency over UK companies, a new identity verification process will be introduced at Companies House (under the Economic Crime and Corporate Transparency Bill (ECCT) (the ‘Bill’)).
The new process seeks to improve the accuracy and usefulness of the data on the Companies Register and prevent fraudulent director appointments from reaching Companies House.
Who does the new process apply to?
The new identification process will apply to:
- all new and existing directors;
- all new and existing people with significant control (‘PSC’); and
- those who are delivering documents to the Registrar (except for corporate service providers or their employees or officers who have been specifically authorised by the Registrar).
Existing companies that are on the Companies Register will have a transition period in which to verify the above identities.
How will the verification work in practise?
There will be two routes to verification.
- Direct via Companies House; and
- Indirect via an authorised corporate service provider.
The latest Government guidance suggests that if verification is being undertaken directly with Companies House, then it will be completed by a digital service that links a person with a primary identity document, such as a passport or driving licence. The person undergoing verification will also take a photograph or scan of their face and the identifying document, (and the two will be compared). The Government has confirmed that alternative methods of verification will be available for individuals without photographic ID and that digitally assisted / non-digital identity verification will be available for users who cannot use the digital identity verification system.
Alternatively, people may appoint a corporate service provider to help with this process (such as solicitors, accountants, and formation agents). However, only those corporate service providers who have been authorised by the Registrar may deliver documents on behalf of their client. To act in this capacity and be authorised, the corporate service provider must be registered with a supervisory body for anti-money laundering (AML) purposes. The corporate service provider will be asked to confirm they have carried out all the required checks when they liaise with the Registrar.
Who does this impact?
As mentioned above, all new directors and PSCs will be impacted by the new measures. All director identity documents must be submitted to the Registrar before any new company formation documents are delivered to the Registrar. All identification documents for PSCs must be verified within a ‘short time’ after incorporation of a company, otherwise, they will be committing a criminal offence. At this stage, it is unclear what a ‘short time’ amounts to, and we would, therefore, suggest the identity documents of PSCs are treated in the same way as directors and delivered to the Registrar pre-formation of the Company.
In addition, existing companies will have a transition period within which to satisfy the new identity verification rules. After incorporation, a new director appointed to an existing company must verify their identity quickly and prior to their appointment being notified to the Registrar of Companies. Individual PSCs have a 14-day period after registering with the Registrar in which to verify their identity.
The Government guidance says that ‘In general, we expect identity verification to be a one-off requirement. Once a person is verified, they obtain a verified status. However, there may be instances where re-verification is required, for example if the Registrar has reason to doubt the validity of the identity verification, such as on suspicion of fraud.‘ This statement provides some comfort that the verification process and all the associated additional time and costs will not be incurred on a regular basis.
Failure to comply with the new requirements after the transition period (i) may be subject to criminal sanctions of [?or] civil penalties and (ii) the Companies Register will be marked to reflect their unverified status. The full penalty regime will be introduced by secondary legislation under new and existing delegated powers.
What about Corporate Directors?
The latest Government guidelines suggest that regulations will be introduced alongside the Bill which will set out a limited basis upon which companies will be allowed to retain or appoint corporate directors in the future (such as those corporate entities with a legal personality). The directors of such corporate entities will have to be natural persons and they too will have to comply with the new identity verification regime. Existing companies with corporate directors have 12 months within which to comply or resign them.
When do the new measures come into effect?
There is no scheduled date for the introduction of the changes. The measures will require new secondary legislation and guidance, as well as system development, following Royal Assent of the Bill.