Companies House is the UK government agency responsible for incorporating and dissolving limited companies, registering company information, and making that information available to the public.
Its role has always been to ensure corporate transparency by requiring businesses to register their information; submit annual financial statements; and provide other key documents. The information available through Companies House can be accessed by individuals and organizations for due diligence, research, and compliance purposes.
Now, Companies House is going through the biggest evolution in its 180-year history. So, what’s changing? Well, quite a lot.
In line with the UK’s “prevent” fraud and financial crime strategy, the agency is embracing new intelligence and enforcement capabilities to complement its commercial mandate and role as an information repository.
March 4, 2024, marked the inception of the Economic Crime and Corporate Transparency Act (ECCTA), and while there’s a raft of secondary legislation coming down the track, here are four key changes coming into effect.
- Filing companies must have an “appropriate” registered office; file a new “statement of lawful purpose” indicating their activities are legitimate, and pay higher fees for new incorporations – rising to £50 from £12
- Persons of signification control (PSCs), directors, partners of LLPs or LP and Authorised Company Service Providers will be required to pass electronic Identity Verification checks
- Company formation agents will need to become an “Authorised Company Service Provider” (ASCP) to continue providing a number of key incorporation services; be subject to greater regulatory scrutiny. HM Treasury is also consulting on greater regulatory scrutiny for firms who sell so-called “shell companies”
- Companies House will have greater powers to query and challenge information that appears incorrect or inconsistent – in some cases, data that is inaccurate, incomplete, false, or fraudulent. And it will have power to directly impose financial penalties up to £10,000 as an alternative to criminal sanctions
Why is this evolution in corporate transparency happening?
The UK is an attractive place to register companies. Access to world class professional services, with a respect for the rule of law, alongside proximity to powerhouse economic centers in London, Europe and across the Atlantic. These fundamentals are attractive to both good and bad economic actors.
Sanctions
Russia’s invasion of Ukraine has been another major accelerator in legislative change. London’s connectivity to Russia was a particular focus for law makers who ensured the ECCTA passed through the legislative process in under two weeks to tackle the issue of sanctioned individuals/entities potentially exploiting legitimate corporate vehicles.
Fraud
Fraud is also higher up the policy agenda for UK Government than at any time in recent decades. Fraud accounts for around 40% of all crimes in England and Wales, 70% of which has an international element. Large scale fraudulent operations benefit from complex business networks to launder proceeds and create the veneer of legitimacy. Europol reported last year that 80% of criminal networks active in the EU abuse legitimate corporate vehicles.
Shell companies and mass registration
Moody’s recent Shell Company Indicator insight and analysis shows us why transparency has become such a pressing issue for the UK. Mass registration for example enables bulk creation of so-called zombie or burner companies. Evidence of control is deliberately obscured, legitimate purpose is unclear and once used they are often quickly deceased.
According to Moody’s data there have been over 200,000 companies created via Mass Registration in the UK since 2020. UK company formations last year topped over 1 million in total, around 8% of all global formations. That’s a lot of data to process, and a lot of potential risk to identify.
Digging deeper into this Mass Registration cohort we found that 9,770 companies have substantial ownership links to China (>5% holdings). Remarkably, 8,440 companies are registered to just 10 addresses.
Suspicious registration patterns, ownership networks, and financial history are not exclusive to the UK. However, these trends evidence why the UK is moving forward to clean up its register.
Why changes to corporate transparency matter
Geopolitical winds are changing more quickly than ever. This year nearly 50% of the worlds’ population goes to the polls. Regimes which today rank as well respected commercial partners who uphold international standards of commerce may change overnight.
The UK is a highly integrated global economy, nothing typifies this more than the story of Companies House. It’s urgent evolution is a lesson for us all when asking the question – How can we use data and insight more effectively to promote efficient “straight-through processing” while delivering “targeted friction” to highlight investigative work for skilled analysts to prevent financial crime?
Everyone benefits from more accurate, reliable, and up to date corporate registry data. Let’s support Companies House as they set sail on the voyage of data discovery.
How can Moody’s help?
Based on automated access to comprehensive, global risk-relevant data on individuals and entities, including data from national registries, Moody’s can help you answer the question – who am I doing business with and what are the risks involved in working with them?
We help you create insight from data, so you can understand risks and make decisions with confidence.
Please get in touch with the team for more information on Moody’s global entity verification data and how we can help you create transparency across your counterparty network – we would love to hear from you.
Source: Moody’s Press Release
