Spring 2023: New verification requirements as part of Companies House reforms

The Economic Crime and Corporate Transparency Bill has seen plenty of publicity in the past few months. As it now looks set to pass into law in Spring 2023, it is worth considering some of the key changes that will affect all organisations.

The Bill has completed its passage through the Commons, and after the current ‘Committee’ stage in the Lords is completed (expected in March), it will have only its Third Reading and Report stages to complete. Earlier this month the Government produced a Briefing Paper to outline the key legal changes this Bill will implement. There are a number of important reforms for compliance officers to be aware of.

One of those areas, of particular interest to those tasked with corporate compliance, are the reforms to Companies House and filings. The Bill will reform the powers of Companies House so that it becomes an active ‘gatekeeper’ with a much bigger role in ensuring corporate transparency and guarding against economic crime. This includes strengthened information requirements for companies, including identity verification. 

In particular, as the Explanatory Notes to the Bill explain: “...all new and existing registered company directors, [and] people with significant control [PSCs]…will have to have a verified identity with Companies House, or have registered and verified their identity via an anti-money laundering supervised authorised” (our emphasis).

Unless and until their identity is verified a director will not be able to act as a director. A company will be obliged to ensure that a director does not act until the verification has been completed. On appointment, directors will have to confirm that they are not disqualified from acting as directors. Application Forms to incorporate new companies are being amended to include a statement that the company's directors have had their identities verified. 

Further information is available in our article: Continued momentum on economic crime and corporate transparency reform 

From April 2023: Those bidding for Government Contracts may need to increase their MSA supply chain transparency

The Government recently published Procurement Policy Note 02/23: Tackling Modern Slavery in Government Supply Chains to take effect from 1 April 2023. It is principally expressed to apply to procurements undertaken by Central Government Departments, their Executive Agencies, Non-Departmental Public Bodies, and NHS bodies. However, there is encouragement for the PPN to be used by wider government organisations, and it may also be used in respect of Government Grant Funding.

Bidding organisations (and indeed suppliers to bidding organisations) and potentially also grant recipients should take note because the crux of this PPN is that – particularly for procurements deemed to be at ‘high’ risk of modern slavery – the level of supply chain transparency, and extent to which bidders might be expected to interrogate risks further down their supply chain, will increase. 

Since the implementation of the Modern Slavery Act 2015, organisations have developed their own suites of standard contractual clauses, reporting mechanisms, and other systems to help them comply with their MSA reporting obligations. However, bidding organisations, and their suppliers, may need time to adjust to any enhanced level of scrutiny.

Further information is available in our article: Procurement Policy Note PPN 02/23 – Modern Slavery – What you need to do to comply 

Consulting now for changes in 2024: Extension and Reform to Payment Practice Reporting

The Reporting on Payment Practices and Performance Regulations 2017 and the associated 2007 Regulations for LLPs (the “2017 Regulations”) were recently re-considered by Government. It concluded that they remain “the appropriate mechanism to address the policy objectives” of corporate transparency over payment practices.

As a reminder, the 2017 Regulations have meant that since 2017 there has been a duty to report on a half-yearly basis on payment practices, policies and performance for all companies meeting two or all of the thresholds (re turnover, balance sheet, employees) for qualifying as a medium-sized company under the Companies Act 2006 (or an LLP meets the equivalent test). In particular, this includes reporting on standard terms used, and providing certain statistics (for example as to the proportion of invoices paid within 30 days).

But there is now a Government Consultation (closing 28 April 2023) on whether the reporting requirements should also be extended to include additional metrics. In particular, the consultation sets out proposals on:

• including an additional value reporting metric;
• referencing payment reporting in a company’s director’s report;
• a clarification of how supply chain finance is reported; and
• including a new metric on disputed invoices

Those involved in the consultations on the original 2017 Regulations may recall the concerns raised by business about implementing new financial systems in order to capture the data on which they would be required to report. Presumably, similar concerns will exist around the new reporting metrics proposed to be added. 

It would be prudent to assume that any changes will take effect from April 2024, although Government may allow an additional grace period for putting systems in place to capture and report on any new metrics. Nevertheless, organisations may wish to engage with the consultation and/or consider whether there current systems will allow them to meet their reporting obligations in their proposed extended form.

Further information is available here: Consultation on Amendments to the Payment Practices and Performance Regulations 2017

If you would like to discuss any of the above or how they might impact your organisation, please do contact Lloyd Nail or your usual Burges Salmon contact