IRIS Elements: How the Economic Crime and Corporate Transparency Act (ECCTA) impacts Anti-Money Laundering (AML)

The “most significant change” in the history of Companies House has recently been heralded following the introduction of the new Economic Crime and Corporate Transparency Act (ECCTA).

This Act marks a crucial step towards empowering Companies House and addressing the issue of businesses being established under fictitious identities, helping enhance transparency within UK companies and legal entities.

Following the Act, a lot will be changing over the next few years; so, what’s the impact, how does it affect key legislation such as Anti-Money Laundering (AML) and what must accountants do?

Why was the Act introduced?

The Economic Crime and Corporate Transparency Act gained momentum following Russia's invasion of Ukraine and the subsequent clampdown on illicit Russian funds circulating through the UK.

However, progress of the Act through parliament was gradual, taking more than a year since the Government initially revealed plans in September 2022 to curb the influence of "dirty money".

What’s the bottom line for Anti-Money Laundering?

The Act has its sights firmly set on tackling money laundering.

A primary focus of the reform's Anti-Money Laundering initiatives revolves around facilitating the exchange of information in specific situations to both prevent and investigate economic crime.

This is achieved by exempting firms from civil liability for breaches of confidentiality when sharing information to combat economic crime.

Furthermore, the reform eliminates the prerequisite for a pre-existing suspicious activity report to have been submitted before the National Crime Agency's Financial Intelligence Unit can issue an information order.

Additionally, throughout its journey, several amendments were incorporated, including novel measures that hold companies accountable if they benefit from the deceitful actions of their employees.

There are also new provisions designed to safeguard defendants when confronted with Strategic Lawsuits Against Public Participation (SLAPPs).

What the Economic Crime and Corporate Transparency Act changes in 2024

Historically, Companies House has lacked the resources needed to clamp down on suspicious activity.

However, coming in March 2024, the Act encompasses provisions that provide Companies House with more power. These include:

• Enhanced authority to query data. This empowers Companies House to thoroughly examine and disapprove of information that appears inaccurate or inconsistent with existing records. In certain instances, Companies House possess the capability to eliminate such information

• Strengthened scrutiny of company names

• Updated regulations concerning registered office addresses, mandating that all companies maintain a suitable address consistently and prohibiting companies from designating a PO Box as their registered office address

• Mandatory provision of a registered email address for all companies

• Necessary confirmation from all companies during incorporation, affirming their establishment for lawful purposes. Annually, companies are obliged to confirm the legality of their future activities in the confirmation statement

• Inclusion of annotations on the register to alert users to potential discrepancies in the provided information

• Implementation of measures to cleanse the register, utilising data matching to identify and eliminate inaccuracies

• Collaboration in data sharing with other Government departments and law enforcement agencies

Learn more about the Economic Crime and Corporate Transparency Act here.

What does the shake-up mean for accountants?

For most accountants, the Act changes very little as long as you’re confident your clients are who they say they are.

Yes, accountants need air-tight processes when assessing clients and submitting that information to Companies House.

However, many already do this as part of their AML processes and the only addition is simply notifying Companies House.

Perhaps the most tangible and immediate impact will be adding clients’ email addresses to the record and ensuring PO boxes aren’t being used as registered office addresses.

Coming soon: what does the shake-up mean for your clients?

While the date is not yet confirmed, following the Economic Crime and Corporate Transparency Act, small companies and micro-entities will now be obligated to submit a profit and loss account.

Additionally, small companies are required to also file a director's report.

To clarify, under the new regulations, a small company is defined as meeting two of the following criteria:

• Either having a turnover of £10.2 million or less

• A balance sheet total of £5.1 million or less

• Employing 50 individuals or fewer

Micro-entities, on the other hand, are characterised by meeting two of the following criteria:

• Turnover of £632,000 or less

• A balance sheet total of £316,000 or less

• Having 10 employees or fewer

As well as the new profit and loss filing mandates, directors of companies utilising audit exemption rules, such as dormant companies, will need to give additional information, such as a statement confirming their eligibility for the exemption.

What do accountants think of the changes?

For the most part, accountants welcome these changes to Companies House.

Head of Technical and Strategic Engagement at the Institute of Chartered Accountants of Scotland (ICAS), Robert Mudge, stated: “This legal update is crucial in enabling registrar to keep up to date with fast-moving digital technology protecting individuals and businesses against fraud.”

While Mike Miller from the Institute of Chartered Accountants in England and Wales (ICAEW) added: “It’s vital for both the business community and the public interest that the platform contains accurate and verified company data, and these changes should achieve this.” 

Protecting your firm against dirty money

Want to better understand Anti-Money Laundering? Look no further.

As we understand time is your greatest commodity, we’ve created a handy guide, covering everything you need to know about AML – download the AML guide here.