What are the proposed changes to identity verification for company directors?
The UK government’s proposals set out in its White Paper on Corporate Transparency and Register Reform promise a fundamental shake-up of existing processes at Companies House. The changes will affect all UK company directors, whether existing or newly appointed, as well as persons having significant control (PSCs) and third parties involved in filing information at Companies House.
Why is reform necessary?
Reform is needed because the current system is open to abuse. Companies House is an institution dating back to the mid nineteenth century, but one which has a key part to play for business in the twenty-first century. In 2019 the government began a process of consultation on the role of Companies House with the objective of increasing the transparency of the information on the companies and limited liability partnerships registered there.
At present, Companies House accepts filings on a “good-faith” basis and the Registrar has limited scope to investigate or challenge the information presented. A company may be incorporated, and its directors appointed, with no checks made on the information filed. Specifically, there have been growing concerns that misuse of companies and the inaccuracy of information filed on the companies’ register were bringing the system into disrepute. The new proposals are designed to improve the accuracy of information on the register and to strengthen the UK’s ability to target economic crime.
What are the proposed changes for directors?
As part of the reform measures, all existing directors, as well as new directors, PSCs and third parties filing information at Companies House, will need to open an account with Companies House and verify their identity. Under the new regime a director will need to provide a legitimate identity document, such as a passport or driver’s licence to Company’s House, which will cross check the identity against its data base of verified accounts. Once identity has been verified, the director will have one verified account for use whenever Companies House is required to verify the director’s identity.
In practice this means that before a new company can be incorporated, all prospective directors will need to verify their identity. The appointment of a new director to an existing company will be conditional on this verification process and existing directors will also be required to have their identity verified, within the prescribed transitional period.
Without identity verification, a director’s appointment will not be effective or appear in the register of directors at Companies House. If a director fails to verify his or her identity, this will be an offence and such director may be liable to a fine. The company itself will also be guilty of an offence and this failure to verify will be marked in the register maintained at Companies House and will be on record for anyone reviewing that company’s filing history.
What about PSCs?
Persons with significant control (PSCs) will also have to provide identity verification. For PSCs, however, this will be required after they have been notified as a person with significant control by the company. If the PSC already has a verification account at Companies House (for example he/she is a director), their PSC entry will be flagged as verified by Companies House. If there is no existing account, Companies House will inform both the company and the PSC that the PSC’s identity must be verified. As will be the case for directors, failure to comply with this requirement will be an offence.
What happens next?
The government intends to introduce the necessary legislation as soon as possible and Companies House is already working on infrastructure to make the necessary changes to its operations. Once the reforms have been implemented, there will be a transitional period for companies, directors and PSCs to comply with the new requirements.
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