In January 2023, the Government published a policy paper outlining important changes to the company registration and filing process. Under the new plans, anyone filing documents or registering a company with Companies House will need to prove their identity. With the current system, there is no requirement to provide proof of identity, which increases the risk of fraud or false information being placed on the public record. In this article, we will discuss the new identity-checking requirement, why this is being done, how the new process will work, who will be affected by the changes, and the benefits for entrepreneurs and business owners in the UK.
What are the proposed changes?
Under the Economic Crime and Corporate Transparency Bill 2022 (the 2022 Bill), anyone registering a company or filing documents with Companies House will now need to provide evidence that they are who they say they are. As the policy paper explains, “Individuals who register companies or file with the Registrar will have to prove they are who they say they are by verifying their identity”.
The 2022 Bill gives Companies House a series of new powers to require the identity of any person registering a new company or filing documentation relating to an existing company. The change to the law will also mean that if the Registrar believes that the identity of a person attempting to register a company or file documents is not genuine, it has the power to reject the information provided.
The 2022 Bill makes a number of amendments to the Companies Act 2006 and imposes four objectives on the Registrar:
Objective 1 – Ensure that any person who is required to deliver a document to the Registrar does so (and that the requirements for proper delivery are complied with).
Objective 2 – Ensure that documents delivered to the Registrar are complete and contain accurate information.
Objective 3 – Minimise the risk of records kept by the Registrar creating a false or misleading impression to members of the public, and
Objective 4 – Minimise the extent to which companies and others—
(a) carry out unlawful activities, or
(b) facilitate the carrying out by others of unlawful activities.
The aim of this new process is to stamp out fraud and false information being filed with Companies House. Ultimately, it is hoped that the changes will prevent the registration of fictitious directors and beneficial owners and prevent fraudulent appointments from being placed on the Companies House register. More broadly, the new ID check process will provide enhanced assurance to customers, partners, and suppliers that the information held by Companies House is correct, enabling them to make informed business decisions about the companies they deal with.
The Government has stated that the new identity verification procedure will be “a simple, quick process without significantly adding to the existing requirements on business”.
Who will the new proposed identity verification process affect?
The proposed identity verification checks will affect both new and existing:
- Company directors
- People with Significant Control, and
- Individuals filing documents with Companies House
The policy paper confirms that companies already on the Companies House register will be given a period of time (i.e. a transition period) during which they will need to verify the identity of these individuals; “There will be a transition period for existing directors and their equivalents, and for PSCs to verify their identity in. This transition period will provide existing directors and PSCs time to comply with the new requirements whilst ensuring the integrity of data already on the register”.
For those registering as a new company director, the new process will require them to prove their identity before submitting a company formation application to Companies House.
The new rules will also mean that PSCs and For Relevant Legal Entities (RLEs) will need to verify their identity within a set time limit after a company is officially incorporated by Companies House. Specifically, the policy paper states that:
- Company directors will need to verify their identity before their appointment is notified to the Registrar
- PSCs will need to verify their identity within 14 days of registration with the Registrar
- Relevant Legal Entities (RLEs) will need to verify their identity within 28 days of registration with the Registrar
The rules also state that RLEs must provide the name of their ‘verified relevant officer’.
It is expected that the new Registrar identity verification process will only be required once for each party affected. The policy paper states, “once a person is verified, they obtain a verified status”. Re-verification will likely only be required in limited circumstances, including when a person changes their name. The exact events that will trigger the need to reverify identity are yet to be defined by the Government.
How will the new Registrar identity verification process work?
Under the newly proposed changes, a person will be able to verify their identity either directly with Companies House or through an authorised third-party service provider
Method 1: ID verification with Companies House
It is proposed that when dealing directly with Companies House, ID verification will be completed using the individual’s passport or driving licence (or another form of primary identifying document held on record by a government department). The person requiring ID verification will simply provide a photo of their face and a copy of their official identifying document. If the likeness of the photo and the photo on the driving licence/passport match, the identity of the person will be automatically verified, and a notification will be sent within a matter of minutes. To make sure that the copy of the primary identity document is genuine, further checks may be carried out against the records held by government departments.
This type of automated and seamless digital identity verification is already commonly used by digital financial service providers. As the policy paper explains, where a person does not have a form of photographic ID and hence cannot use the digital identity verification system, a non-digital identity verification process will be made available.
Individuals will also be able to prove their identity with an authorised third-party service provider. These third-parties will be referred to as ‘Authorised Corporate Service Providers (ACSPs)’.
ACSPs will most likely be existing third-party business service providers, including accountants, legal advisers, and company formation agents that are already properly registered with an AML supervisory body. Before providing identity verification services, each ACSP will need to register with Companies House and provide evidence that they are already subject to AML supervision.
The policy guidance on the proposed changes explains that ACSPs will undertake a similar ID verification procedure as they currently perform for AML checks. The intention is that these checks will “achieve the same level of assurance of the claimed identity as those undertaken through the direct verification route”. ACSPs will also need to keep records of all verification checks they carry out, and Companies House will be able to request these at any time.
The benefit of ID verification for business people and entrepreneurs
The newly proposed ID verification process is all about ensuring that the information held by Companies House is genuine and correct. But moreover, it will instil confidence across all UK business and commerce stakeholders. Directors and other parties can be assured that their information cannot be altered by fraudsters. And businesses and investors carrying out due diligence on potential investment opportunities, partners, suppliers, and customers, can be assured that they are dealing with genuine business entities and registered individuals.
As the Government’s transparency whitepaper explains, the proposals “will help encourage enterprise and entrepreneurship, as prospective directors will have greater confidence that their personal information will be safeguarded should they decide to start a company or take an appointment as a director. It may also encourage individuals to invest in UK corporate entities, given shareholders and PSCs will be able to apply for protection if they can provide evidence that they are at risk of harm for personal reasons”.
Final words
The changes proposed by the 2022 Economic Crime and Corporate Transparency Bill are undoubtedly positive and welcome. This is especially so because it will instil greater confidence in UK business overall. While these changes will introduce an additional step for those who deal with Companies House, the latest ID verification technology will ensure that this should be a quick, efficient, and one-off process.
There is presently no confirmed date for when the new changes will be introduced, not least because the secondary legislation needs to be passed and new systems developed. We will provide more information in due about when we know more about the new ID verification process and how we can take care of this on your behalf.
