The Economic Crime and Corporate Transparency Act: A guide to identity verification

Economic Crime and Corporate Transparency Bill

The landscape of anti-money laundering (AML) compliance for firms in the UK is undergoing a significant evolution with the introduction of the Economic Crime and Corporate Transparency (ECCT) Act 2022. This legislation not only aims to improve corporate transparency and combat economic crime, but also introduces stringent measures, particularly in the identification and verification of the individuals behind businesses. 

In the past, the absence of thorough identity checks when filing with Companies House has allowed fraudsters and money launderers to exploit loopholes and establish entire networks of dodgy organisations for illicit activities. The ECCT Act is set to integrate identity verification into online transactions with Companies House, building trust in the authenticity of company officers and ensuring their accountability.

Anyone who submits paperwork or files documents on behalf of a company, whether they are a director or a non-director employee, must now verify their identity with Companies House before proceeding.

However, legal advisors and accountants who are registered as Authorised Corporate Service Providers (ACSP) will also be able to submit filings on behalf of their clients. In this case, firms acting as ACSPs must be registered with a supervisory body for anti-money laundering purposes, completion of due diligence checks, and have their supervisory status confirmed with Companies House.

In this article we take a look at what this landmark legislation entails, the changes it will bring about, and its implications for firms in the UK. We’ll also share a couple of key strategies to prepare for these changes and discuss the role of ID&V technology in facilitating compliance. 

What is the Economic Crime and Corporate Transparency Act?

The Economic Crime and Corporate Transparency Act is a piece of legislation designed to combat soaring levels of economic crime, including money laundering and corruption. 

At its core, the Act seeks to enhance corporate transparency and accountability by imposing stricter requirements on companies and individuals involved in complex corporate structures.

The government has announced that the Act will “make it much harder to register fictitious directors or beneficial owners, stopping the vast majority of fraudulent appointments from reaching the Companies House register.” 

As a result, any individual that registers a company or files with the Registrar will have to prove that they are who they say they are by verifying their identity. This applies to both existing directors, People with Significant Control (PSC), and those that deliver documents to the Registrar. 

Key changes and implications for compliance in firms

The Economic Crime and Corporate Transparency Act introduces several significant changes that will have profound implications for AML compliance which we discuss in detail below.

Enhanced ID&V requirements

One of the most notable changes is a heightened emphasis on identity and verification (ID&V) processes. Under this new legislation, firms will be required to implement more robust and thorough ID&V procedures for clients, beneficial owners, and individuals associated with corporate entities.

This shift towards enhanced ID&V requirements reflects the growing recognition of the importance of verifying the identities of those involved in corporate structures to prevent money laundering and other forms of fraud or financial crime. As a result, firms will need to look at their existing client ID&V processes in detail, and where appropriate, invest in new technologies and resources to ensure compliance with these stringent ID&V requirements. 

This could include the adoption of biometric authentication, liveness checking, and document verification solutions to verifying the identities of both their clients and associated stakeholders accurately.

Introducing Authorised Corporate Service Providers (ACSPs)

The Act also introduces the role of Authorised Corporate Service Providers or ACSPs who will play a pivotal role in facilitating ID&V processes on behalf of companies. ACSPs will act as intermediaries, assisting firms in verifying the identities of directors and ensuring compliance with AML regulations. 

It’s thought that ACSPs will conduct identity checks alongside other services such as company formations, tax, accountancy, or legal advice but they must be registered with an appropriate supervisory body or regulator for anti-money laundering purposes. They must also ensure that their status as an ACSP has been verified by Companies House. 

Maintenance of beneficial ownership registers

Another key change brought about by the legislation is the requirement for companies to maintain accurate and up-to-date beneficial ownership records, disclosing information about individuals with significant control (a PSC) over the company. As a result, firms must ensure thorough due diligence in verifying the beneficial ownership information provided by clients. 

Stricter penalties for non-compliance

The Act also introduces stricter penalties for non-compliance with these requirements. Firms that fail to adhere to the new obligations will face significant fines, criminal charges and even sanctions.

How can ID&V software help?

Effective ID&V processes are essential for businesses to establish trust, mitigate risk and comply with the regulatory requirements outlined by the ECCT Act. Accurately verifying the identities of directors, clients and stakeholders can help in the prevention of fraud, illicit activity, money laundering and reputational damage. 

ID&V technology can play a pivotal role in enabling firms impacted to meet the stringent requirements of the ECCT Act. This process will be a cornerstone of ongoing compliance, ensuring firms are able to verify the identities of their clients, beneficial owners, directors, and PSCs of corporate entities. 

With the introduction of this new legislation, firms must adopt ID&V technology to ensure compliance and mitigate the risk of money laundering and other illicit activities. 

By leveraging innovative ID&V solutions that include biometric authentication, liveness checking and document verification, firms can ensure and enhance the accuracy and efficiency of their ID&V processes. 

Moreover, ID&V technology offers significant advantages in terms of efficiency and cost-effectiveness, while also reducing the risk of human error. By integrating this technology into their client workflows and director verification, firms can demonstrate a commitment to upholding the highest standard of corporate transparency. 

Please note: While we here at NorthRow work with compliance professionals every day, we are not lawyers. This post is a high-level overview of the Economic Crime and Corporate Transparency Act 2023. This post should not replace sound legal advice tailored to your business that is available from professional solicitors or lawyers.

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