The long-awaited Economic Crime and Transparency Act (ECCT Act) received Royal Assent on the 26th of October.
We talked to Chris Oatts, our Head of Data and Product Strategy, to get the inside scoop on everything you need to know about the Act and how it will affect your risk management in 2024.
What is the ECCT Act, and why is it important?
We have one of the world's largest and most open economies in the UK. Unfortunately, it has attracted kleptocrats, criminals and terrorists, who take advantage of our system for criminal purposes. While Companies House is a valuable and vast database, its open registry has made it relatively easy for criminal entities to go unnoticed.
This poses significant risks to your business.
The government introduced the ECCT Act to further crack down on the growing fraud and money laundering problem. The National Crime Agency has estimated that the annual cost of money laundering in the UK is hundreds of billions. The new legislation builds on the 2022 Economic Crime Transparency and Enforcement Act. It provides wide-ranging powers to prevent bad actors from abusing our system.
“For many years the industry has been aware of the issues with Companies House. The abuse of the system has increased in the past 20 years, particularly in tough economic times. I have worked on the ECCT proposals with industry colleagues for around 2 years. We worked with the Department of Business and Trade and Companies House to share our concerns and recommend changes for a more robust system."
Chris Oatts, Head of Data and Product Strategy
The Act focuses on 4 key areas, to strengthen the UK’s reputation as a world leader in the growth of legitimate business. Here are some of the key reforms:
Companies House reform
- All new and existing companies will be required to complete identity verification.
- New powers for the Registrar to check, decline and remove information on the company's register.
- Improvement of the accuracy of the financial information provided.
- Companies House has new enforcement powers including the ability to share suspicious information with law enforcement.
Limited partnership reform
- Registration and transparency requirements will be tighter.
- Limited partnerships will be required to maintain a connection to the UK.
- New powers for the Registrar to deregister certain limited partnerships.
Cryptoassets
- Additional powers given to law enforcement to seize and recover crypto assets linked to crime.
Anti-money laundering powers
- Businesses can share information more freely to prevent economic crime in certain situations.
- Law enforcement and the National Crime Agency’s Financial Intelligence Unit have more power to gather intelligence from businesses related to money laundering and terrorist financing.
- Reduced reporting burden on businesses when dealing with a clients’ property, with greater prioritisation on law enforcement resources.
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How will this impact Company Watch customers?
These reforms are a new remit for Companies House. They will have to evolve from simply holding information to having power and responsibility over the data. This is not a small undertaking. It remains to be seen how they will manage to implement the reforms.
“ECCT is a massive project for Companies House. There will be extra guidance, consultation and legislation required to implement the changes. Companies will have to be given reasonable time to transition to all the new requirements and not all at once. In addition, we must also consider that 2024 is an election year and therefore it may be difficult to get the government to focus on getting new legislation through parliament quickly.
As a result, it is likely to take many years before the true power and value of these reforms will become apparent. In the meantime, the register will continue to be abused. Company Watch has already released innovative solutions like 'Phoenixism' to bridge these risks for our customers. We will continue to do so over the next 12 months, please watch this space.”
Chris Oatts, Head of Data and Product Strategy
While it may take some time to understand the full impact of the Act, here are some of the ways it might affect your business:
- Identity verification will improve the data accuracy and legitimacy of entities on the register. You’ll have more confidence that the companies you do business with are not fraudulent.
- Greater financial transparency will give you greater security in your decision-making process. The more information you have on an entity, the more security you’ll have.
- The new powers given to businesses and government agencies to share suspicious information should help crack down on the abuse of the system, weeding out unscrupulous actors and protecting your business.
- Larger companies will be legally responsible for preventing fraud and are required to have a transparent fraud policy.
Remaining vigilant in 2024
Whatever the impact of the ECCT Act, one thing is clear. It won’t be able to solve all the issues that plague the market.
As times remain tough going into 2024, you need to be on the lookout for unethical behaviour. UK insolvencies have risen to a 14-year high. One of the consequences of this is an increase in fraud and Phoenixism.
Enhanced director matching to the rescue
Spotting Phoenix companies at an early stage is key. You can refuse to extend them credit and avoid devastating debts. Phoenix directors can go to great lengths to bury their links to insolvent companies, but they can’t hide from us.
Introducing our enhanced director matching tool:
- Our powerful, automated machine-learning tool analyses director and officer details including name, location, and age.
- It then provides you with a confidence percentage that an individual director profile is linked to any other profile. You can see all possible directorships that an individual may have held.
- This allows you to understand the current financial health of a company, and hidden links to other companies that have failed in the past.
- Our enhanced director matching allows you to sort through millions of directors on Companies House and match them to any hidden histories of insolvency.
- This can be done in seconds, giving you more time to accurately manage and mitigate risk.
Enhanced director matching can help you do your due diligence, and spot unscrupulous behaviour before it becomes a problem for your business.
For more information on how you can future-proof your business, arrange a free trial.
