INSIGHT: Companies House ID verification is now mandatory – how to stay compliant

FINANCIAL regulation has significantly tightened in recent years. Given that the National Crime Agency estimates £100bn of illicit finance is laundered through the UK every year, it’s not hard to see why.

Consequently, crucial changes affecting all UK companies come into effect from today, 18^th November. As part of the broader Economic Crime and Corporate Transparency Act (ECCTA), identity verification through Companies House will become mandatory for all existing and future company directors and people with significant control (PSCs).

This raises the bar for data integrity, helping to prevent fraud by providing more assurance about who is setting up, running and controlling UK companies.

Until now, Companies House has not verified any of the information submitted to it by businesses. Considering that the repository currently holds records on 5.3 million corporate entities and more than 7 million individuals, this has therefore created opportunities for bad actors to hide their criminal activity. Criminals may register companies using false names, stolen identities or use fake companies to open bank accounts, conceal their involvement and launder money. 

Who will be impacted by Companies House ID rules?

ECCTA will actively target these criminal actors by giving Companies House more power to prevent company formations and weed out illicit activity. When setting up a new company or appointing new directors, from 18^th November, individuals will have to verify their identity. All existing company directors will have to also complete this process either within one year or before their next confirmation statement date.

These rules will transform Companies House from a passive repository of information into a regulatory body. However, this also presents another compliance hoop for businesses to jump through. Research shows 73% of organisations already lack confidence in staying compliant with regulations, and 30% expect things to worsen in the next year. 

The Companies House changes will inevitably increase administrative workloads for many organisations, as they have to grapple with the overhead and complexity of these identity checks.

What are the risks of non-compliance?

The powers granted to Companies House now mean real enforcement, taking the body from being a passive registrar to an active regulator. If you don’t complete the verification steps, you simply won’t be able to form a company, and failing to comply for existing directors can result in substantial fines, rejection of financial filings until all individuals are verified or even disqualification as a director in some cases.

The ECCTA also introduced the criminal offence of failing to prevent fraud in September this year. This makes large companies  liable if an employee or other associated person commits fraud that benefits the business and no reasonable fraud prevention procedures were in place to uncover the crime. 

Compliance with the new rules is therefore crucial for businesses to get right, but it can be hard to know where to begin.

What can businesses do next?

One of the simplest ways to verify identity and show that your business is taking the necessary precautions to prevent fraud is verifying identities through an Authorised Corporate Service Provider (ACSP).

An ACSP is a newly defined type of agent that is authorised by Companies House to submit company filings and carry out identity verification. Employees of companies can still do filings, but they will also have to complete identity verification, which adds an extra layer of administrative complexity.

Businesses looking to become ACSPs and verify information submitted on behalf of clients – think accountants or solicitors – must already be governed by anti-money laundering regulations and be registered with a supervisory body such as HMRC, the SRA, or the FCA. 

Once registered, implementing a robust system to manage identity verification is key. This may include ACSPs using document verification tools that digitally collect and validate ID documents, with technology such as facial recognition able to ensure the person is real and matches the ID provided. These tools can also provide a full digital framework for compliance with various regulatory requirements, to help company directors focus on their core business instead of getting tied up in compliance activities.

All other businesses must review and update their internal processes immediately. This includes auditing lists of existing directors and ensuring robust procedures are in place to manage verification and compliance, such as appointing an ACSP and updating the onboarding process for appointing new directors or PSCs to include verification. 

Ensuring a smoother transition

When already tasked with running and growing a business, it can be tough for company directors to keep an eye on rules being introduced, when, their impact and how to ensure compliance. 

With an ever-changing compliance landscape and severe consequences if businesses  don’t do enough, working with providers that implement a full digital framework and associated compliance tools can give them peace of mind that they are not in breach of any regulation. This enables companies to ensure a smoother ECCTA transition, so they can focus on delivering excellent service and win customers with trusted identities.