UK company registrations expected to slow as new director certification rules come into effect
The UK company register is expected to undergo a major overhaul next year as new rules for verifying the identity of company directors and beneficial owners come into force in the face of corporate and financial crime.
From 18 November, all new directors and persons with significant control (PSCs) must verify their identity with companies before they can work or run a company. Existing directors and PSCs will be included in the system over the next 12 months, to complete verification when they submit a statement of verification. Acting as a director without certification will be a criminal offence.
The changes aim to address fraud, money laundering and abuse of shell companies by ensuring that “the people who establish, control and manage the companies are who they are,” the companies said. More than a million people have already verified their identity, with up to seven million expected to complete the process in the next year.
But experts say the immediate impact will be seen in the number of new filings – and the size of the UK company Register more broadly.
Corporate filing and financial crime expert Graham Bargow predicts that filing rates will “fall off the cliff” from Tuesday to Tuesday as those who do not want to reveal their identity have abandoned the system.
“There’s going to be a whole bunch of people who have no intention of using the process,” he said. “We’re likely to see a significant reduction in enrollment next year.”
Bargow stressed that any cuts should not be taken as a sign of weakening economic activity. “Most of these companies will be linked to people who don’t have the best intentions and are forced to think again. There is no evidence that the size of the register is associated with a legitimate economic impact.”
As of September, the UK company’s bike included 5.5 million companies, more than 500,000 of which were already fraudulent or liquidated. Registered agents – including solicitors, accountants and building agents – will be able to confirm the identity of buyers on their behalf.
However, Barrow warned that the changes could increase the rise of attempts to avoid the rules, including the use of “Ghost Directors” – people who have paid to lend their ownership of the business. “There has already been a huge increase in British proxy directors being paid in advance of which companies are controlled overseas,” he said. Fees of around £500 per ownership are “unusual”.
An investigation last year found directors found to be acting as heads of failing companies, allowing the true owners to escape. Three people involved in the schemes have since been banned from operating companies.
Along with the verification of ownership, legal experts say the second major change is set to reset the scrutiny of corporate governance: a new investigative duty placed on the companies themselves.
Hamish Perry, partner at Charles Russell Encomerys, said businesses should now investigate what PSCs are not.
“From 18 November, companies must take additional steps to establish the identity of their PScs, including serving formal notices to anyone they believe may hold that information,” he said. “There is also a duty to inform companies of a house where a company suspects someone to be a PSC or a relevant legal entity, even if the person has not confirmed it.”
Perry said the changes represent a “significant raising of the bar” for virtual exposure: “Businesses with complex structures or incomplete stock information will be particularly affected.”
The changes are accompanied by the abolition of official registers and stricter registration requirements, placing companies under greater scrutiny.
“This is not just a legislative change,” Perry added. “It’s a very dynamic response to regulation.”
