New identity verification requirements for directors and others

You can read our overview of the key changes that ECCTA will introduce in our recent update.

Among the biggest of these changes is the introduction of identity verification. The Government’s hope is that identity verification will make it harder to register fictitious directors or beneficial owners. However, concerns have been raised that the new requirements are overly burdensome. It is hoped that secondary legislation to implement the process will be workable in practice and allow for a risk-based approach towards identity verification.

Who will need to verify?

When the relevant provisions of ECCTA come into force, the following individuals will need to verify their identities:

• all new and existing company directors;
• all members of limited liability partnerships;
• the general partner of a limited partnership (LP);
• all new and existing persons with significant control (PSCs); and
• anyone submitting filings at Companies House on their own behalf or on behalf of another, including authorised corporate service providers (ACSPs).

Identity verification is intended to be a one-off requirement. Secondary legislation is required, and a draft of this is awaited.

How will identity be verified?

The requirements for identity verification are not provided by ECCTA. It is anticipated that there will be two routes for identity verification, both of which rely on supplementary provisions being passed:

• Direct verification with Companies House; or
• Indirect verification via an ACSP.

Direct verification. It is expected that Companies House will use likeness matching technology to verify an individual’s identity. The Government’s factsheet suggests that individuals will take a photograph or scan of their face and their primary identity document (such as a passport or driving license), the two will be compared, and if successful, the individual will have a verified account and received confirmation in a matter of minutes. It is anticipated that alternative methods will be available for individuals without photographic ID and digitally assisted/non-digital verification will also be available for users who cannot use the digital identity verification system. These services are currently under development by Companies House.

Indirect verification by an ACSP. An ACSP may be accountants, legal advisers or company formation agents and must be: (i) authorised by Companies House to file on behalf of clients; and (ii) registered with a UK supervisory body for anti-money laundering purposes (meaning that overseas entities will generally not be able to conduct identity verification). ACSPs must declare to Companies House that they have completed all necessary verification checks and keep records of such checks.

We expect the direct verification method that Companies House are developing will be simple and efficient. We also anticipate that many law firms will register as ACSPs in due course (to enable them to continue to make filings on behalf of clients) but, given the efficiencies that we expect to see when the direct verification route is implemented, we do not expect them to routinely offer indirect verification as a service – we will of course keep this under review.

When will individuals need to verify their identity?

It is anticipated that identity verification will be a one-off requirement. However, there may be instances where re-verification is required; for example, on change of name, or if there is reason to doubt the validity of the identity verification, such as on suspicion of fraud. In addition, information contained in verification statements will not be available for public inspection.

In addition to the above, an individual ACSP and individuals delivering documents to Companies House either on their own behalf or on behalf of another (unless they are an employee of an ACSP and they are acting in the course of their employment) will also have to verify their identities in due course. Note, the identity verification regime does not currently extend to company secretaries, however, if they routinely file documents at Companies House on behalf of a company, then they will have to verify their identity to enable them to continue in this role.

What are the consequences of failing to verify identity?

Failure to comply with the identity verification requirements of ECCTA will be an offence. On incorporation, the registration of a new company may be rejected if its directors are unverified. Unverified directors will also be committing an offence and will be liable to a civil penalty, they may also be prevented from acting as a director, and a company directed by such unverified directors will also be committing an offence. In serious cases, criminal proceedings may be commenced with the potential of an unlimited fine. Given the Registrar’s new powers to annotate the register (which have already been introduced), unverified individuals may have their status flagged as “unverified” on the register.

In addition, if PSCs or relevant officers of a registrable RLE are not verified within a short time after they have become a PSC or registrable RLE (as the case may be), they too will commit a criminal offence.

What steps can you take now?

In preparation for arguably the biggest change that ECCTA will introduce, companies should start thinking about who needs to have their identity verified (existing directors/shadow directors, any person that the company is considering appointing as a director, PSCs and any person filing documents on behalf of the company) and ensure that they have appropriate ID documentation readily available.

Companies may also wish to think about whether there are any corporate directors within their group. Changes will also be introduced to this regime, and when they are implemented (expected to be during 2024), for UK registered corporate directors, all directors of that company must be natural persons and any corporate directors not incorporated in the UK must be registered within the UK.