The Economic Crime and Corporate Transparency Act 2023 (“ECCTA”) received the Royal Assent on 26th October 2023. Despite being in force for over a year now, how many directors of freehold companies, resident management companies, Right to Manage Company and/or managing agent professionals fully understand what this landmark legislation means for them and/or their clients?
The ECCTA represents one of the most significant reforms to Company House since it began its corporate registration service in 1844. At its core, the ECCTA seeks to improve transparency and strengthen the UK's ability to tackle economic crime.
The ECCTA seeks to establish four principal objectives which are:
- Ensure compliance with filing obligations at Companies House.
- Improve the accuracy of information provided in those filings.
- Prevent false or misleading information being presented to the public.
- Combat unlawful activities conducted through, or facilitated by, companies and other entities.
KEY CHANGES ON THE HORIZON:
The ECCTA introduces a series of changes that will be implemented gradually over the coming years, namely:
- Spring 2025:
Professional service providers such as solicitors, accountants, and Trust and Company Service Providers (TCSPs) will have the opportunity to become Authorised Corporate Service Providers (ACSPs). These ACSPs will be tasked with verifying information about company directors and persons with significant control (PSCs) and submitting these verifications to Companies House.
BUT the most notably one for directors of freehold companies, RMC, RTM Companies and managing agents will be the change that will come into effect from Autumn 2025:
- From Autumn 2025 ALL company directors and Persons of Significant Interest (PSC’s), both new and existing, will be required to verify their identity.
This will affect approximately 7 million current directors and PSCs, who will have a 12-month transitional period to complete the verification process.
For newly incorporated companies and new appointments, ID verification will become mandatory from the outset.
WHAT DOES THIS MEAN FOR DIRECTORS OF FREEHOLD COMPANIES, RMC, RTM COMPANY & POSSIBLY MANAGING AGENTS?
These changes introduce additional compliance burdens for businesses and individuals involved in company operations. Non-compliance could result in significant penalties, making it essential to seek legal advice to understand and meet the new requirements.
For example, in the context of property management companies established for freehold or leasehold properties, directors and those associated with such companies must ensure compliance with the ECCTA. The penalties for failing to do so can be substantial.
Another example, a group of leaseholders that wish to set up an RTM and who decide to incorporate the RTM Company themselves, instead of quickly setting up a company on companies’ house a series of additional steps need to be carried out. There will be ongoing obligations, especially if additional directors are added.
WHY THESE CHANGES MATTER?
While these reforms may appear onerous, they are designed to enhance corporate transparency and reduce the misuse of UK corporate entities for illicit activities.
Becoming a director will no longer be as straightforward as completing an AP01 form — there will now be a greater emphasis on accountability and due diligence.
We understand the complexities of the ECCTA and its implications for businesses, both new and established. Whether you are setting up a company or navigating the ongoing obligations for existing businesses, we are here to guide you through the process and ensure compliance with these new rules.
Yashmin Mistry, Managing Partner and Nick McEwen, Associate Partner - Corporate & Dispute Resolution Team at JPC
