On 26 October 2023, the Economic Crime (Transparency and Enforcement) Bill 2022 received royal assent and came into force as the Economic Crime (Transparency and Enforcement) Act (the "ECCTA"). While the Bill is now law, many of the company law reforms will be effected through extensive amendments to the Companies Act 2006 and implemented through (as yet unpublished) secondary legislation.

ECCTA proposes changes to Companies House procedures that are intended to assist in identifying and preventing economic crime. You can find more information in our briefing, but its provisions include:

  • broadening the Registrar's powers so that it becomes a more active gatekeeper over company creation and custodian of more reliable corporate data, including new powers to check, remove or decline information submitted to, or already on, the companies register;
  • introducing identity verification requirements for all new and existing registered company directors, people with significant control, and those who file on behalf of companies in order to improve the reliability of the Registrar's data;
  • strengthening transparency requirements for limited partnerships including the need for every general partner to have a "registered officer" and a requirement for more information to be filed on individual limited partners;
  • improving the quality of financial information on the register;
  • providing Companies House with more effective investigation and enforcement powers and increasing the Registrar's ability to share data with other bodies;
  • enabling businesses in certain sectors to share information more effectively to prevent and detect economic crime; and
  • enhancing the protection of personal information on the register to protect individuals from fraud.

For the real estate sector, these changes are likely to be most evident to company directors who will have to verify their identities with Companies House either on the incorporation of a new entity or when an existing entity delivers its confirmation statement. An individual must not act as a director unless they have verified their identity and a company must ensure that an individual does not act as a director unless their indemnity has been verified (certain exemptions apply, e.g. on national security grounds). Note also that certain designated persons, as defined by section 9(2) of the Sanctions and Anti-Money Laundering Act 2018, will not be able to act as directors of a company and appointments of disqualified directors will be void. Directors may also be disqualified for breaches of the ECCTA.

As discussed in our briefing, the ECCTA introduces other changes including a new offence for failure to prevent fraud. The new offence will apply to large organisations in all sectors, with the relevant threshold being met where an organisation satisfies two or more of the following conditions in the financial year proceeding the year of the offence: (i) more than 250 employees; (ii) more than GBP 36 million turnover; and/or (iii) assets of more than GBP 18 million. The offence will apply to organisations when a fraud offence is committed by an employee or agent, for the organisation's benefit, and the organisation did not have reasonable fraud prevention procedures in place. It will not need to be proven that consent or connivance existed, and the offence can be committed even if the organisation and the relevant employee are based outside of the UK.

The offence is limited to failing to prevent offences under the Fraud Act 2006 (fraud by false representation, fraud by failing to disclose information, fraud by abuse of position, obtaining services dishonestly and participation in a fraudulent business, the Theft Act 1968 (false statements by company directors and false accounting), fraudulent trading under the Companies Act 2006 and cheating the public revenue under common law. Be aware that this list of offences list may be updated through secondary legislation in the future, although any new offences added would be limited to economic crime. The types of conduct that could be caught are wide-ranging but, crucially in each case, there would have to be dishonest intent for an offence to committed.

If convicted, an organisation can receive an unlimited fine. The Government is not proposing to introduce personal liability for directors and senior managers under this offence.

It is a defence for the organisation to establish that they have put in place reasonable procedures to prevent fraud, or that it was reasonable to have no fraud prevention procedures in place (for example, organisations where the risk is extremely low). The Government is required to publish guidance to set out the procedures that relevant organisations can put in place to prevent persons associated with them from committing fraud offences. This guidance is expected to be published before the offence comes into force. Organisations should consider conducting a review of existing fraud prevention measures and where relevant incorporating further measures such as:

  • assessment of risks of fraud in the business and review of existing policies;
  • preparation of additional policies and procedures to combat the risk of fraud;
  • training on the new duty and any newly implemented policies and procedures;
  • financial controls;
  • robust transactional and third-party diligence procedures;
  • clear and effective fraud audit and monitoring processes; and
  • regular and thorough reviews of internal systems and controls to ensure appropriate measures are maintained.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.