Act to combat economic crime has received royal assent

Earlier this year we reported on the register of overseas entities, which was created under the Economic Crime (Transparency and Enforcement) Act 2022. This move formed part of a significant and comprehensive series of reforms which recognised the increase of sophisticated fraud in the UK.

In ongoing legislative changes designed to respond to threats of economic crime in the UK, the government is continuing to place an increased obligation on companies to take active steps to mitigate fraud with the introduction of new legislation in the form of the Economic Crime and Corporate Transparency Act 2023 (‘ECCTA’), which received royal assent on 26 October this year.

The ECCTA – complementing the Economic Crime (Transparency and Enforcement) Act 2022 – introduces various reforms, ranging from an extension of corporate liability where an offence is committed by a senior manager of a company, to the inclusion of a new ‘failure to prevent fraud’ offence.

ECCTA has been widely acknowledged as a crucial and long overdue addition to the government’s arsenal of measures designed to challenge fraud and enhance corporate transparency.

Reforms

In what Companies House has called “one of the most significant moments for [us] in our long history,” ECCTA expands the registrar’s powers to check the validity of information on the register, to reject filings and to remove information where necessary.

Part 1 of ECCTA introduces a focus on identity verification. New and existing directors and persons with significant control (amongst others) will need to verify their ID either directly to Companies House or via an authorised provider. Individuals who file documents at Companies House will also need to have verified their identity.

The most significant reform under ECCTA is the introduction of a new offence for failing to prevent fraud. Under this offence, large organisations (aggregate turnover of more than £36M net, aggregate balance sheet of more than £18M and more than 250 employees) will be liable if an employee or third party associated with the company commits a specified fraud offence which is intended to benefit the company. The company may have a defence if they can show that they had reasonable preventative measures in place. The Secretary of State will produce guidance about potential preventative procedures.

What next?

It is important to be aware of the significance of this legislation. The new measures will place stringent demands on companies to mitigate the risk of fraud, and therefore appropriate legal advice should be sought at an early stage to understand any implications the ECCTA may have on the running of your business. Companies should future-proof themselves now by identifying gaps in compliance and ensuring that their internal fraud prevention processes are effective.

Changes will not be implemented immediately as certain measures will require new secondary legislation before rolling them out. However, Companies House has advised that some measures could come into force in early 2024, which may include greater checks on company names, the requirement for all companies to supply an email address and the enhanced powers of the registrar to scrutinise and reject inconsistent information. Businesses should also anticipate an increase to Companies House fees.

If you have any questions or queries regarding the latest changes, please contact our highly rated corporate & commercial team.

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