By Dr Mayya Konovalova, 23 December 2024
October 2024 marked a turning point in the UK’s corporate landscape with the launch of the first Companies House strategic intelligence assessment [1]. The initiative, deriving from the UK Economic Crime and Corporate Transparency (ECCT) Act 2023, signals a profound shift in the agency’s role from passive registrar to active guardian of corporate integrity.
With new powers to reject, amend or remove inaccurate data, Companies House aims to ensure the accuracy and transparency of the UK’s company records, fully aligning itself with the National Intelligence Model to combat economic crime.
The ECCT Act gives Companies House a wider remit, not only to ensure the accuracy and completeness of information but to prevent false assurances and expose misleading practices.
It is a shift critical to addressing vulnerabilities highlighted within the UK’s People with Significant Control (PSC) regime, including significant gaps and loopholes; many companies, for instance, declare no beneficial owner, exploiting rules where no individual holds more than 25% of shares.
Others name foreign companies as ultimate owners without verification on recognised exchanges, while disqualified directors, newborn babies, deceased persons, politicians with potential conflicts of interest, and individuals based in secretive jurisdictions have all been among those credited with influential positions.
Additionally, numerous companies list only mailbox addresses, revealing minimal genuine business presence. Still others operate under circular ownership structures, effectively controlling themselves. The list is endless; the question is whether the Companies House ‘4P’ strategy can rise to the occasion and effectively tackle these issues in their entirety.
Opportunities and challenges
The sheer scale of company registrations in the UK is extraordinary. While Australia momentarily reached top spot in 2022, the UK has since reaffirmed its status as the global leader in company formations, with a staggering 879,862 new companies registered in 2023 alone [2].
This enduring prominence is partly attributed to the UK's prestigious heritage and the remarkable simplicity and affordability of incorporation [3]. One can set up a limited company in the UK within 24 hours for just £50, which as the World Bank has highlighted makes the UK highly competitive [4]. There was no indication in the Companies House Strategic Intelligence Assessment of any plans to alter the UK’s leadership position in this regard [5].
Nevertheless, resource constraints loom large, and the most obvious concern is whether Companies House has the capacity to tackle the vast scale of UK company registrations effectively. Furthermore, balancing timely enforcement and meaningful risk management remains a significant hurdle, along with maintaining productive partnerships with law enforcement and third parties. Effective collaboration with these agencies, though vital, is often inconsistent, limiting Companies House’s ability to properly respond to the complexities of modern financial crime.
Fundamentally, this development enhances the idea that the metaphorical stick, along with enhanced transparency, is the answer to addressing economic crime. The systemic challenge of the PSC regime is that it prioritises procedural accuracy over genuine accountability, where the process becomes a box-ticking exercise, falling short of encouraging behavioural change.
Such gaps in data integrity allow criminals to exploit regulatory inconsistencies, especially as rules and standards vary across international jurisdictions. The intelligence assessment recognises the complex challenges posed by various cross-cutting risks, including the complicity of professional enablers, the misuse of corporate ‘factories’ and phoenix companies and ‘cloned’ and hijacked companies.
At the heart of these concerns is the increasing complexity of criminal structures. Criminals and professional enablers will no doubt respond to the intelligence assessment’s focus with a more sophisticated approach to structuring complex ownership networks.
There is, of course, the risk of inadvertently placing a further burden on law-abiding businesses and individuals. Stricter compliance requirements could unintentionally hinder legitimate enterprises, particularly smaller companies that may lack the resources to meet heightened scrutiny.
If not carefully managed, such measures might impact the ease and attractiveness of doing business in the UK, raising further questions about the agency’s dual aim of facilitating commerce while enforcing robust transparency standards.
As Companies House takes on this ambitious responsibility, its challenge is clear: to balance the UK’s status as an attractive business hub with rigorous standards that deter abuse.
Greater transparency signals to criminals that their actions will face greater scrutiny. But for Companies House to have a truly transformative impact, it must avoid becoming bogged down in bureaucracy. The agency’s efforts will need to transcend formality and embed genuine accountability, or risk merely shifting criminal activity to more elusive networks.
The success of Companies House, as it navigates these complexities and offers a more robust deterrent to economic crime, will serve as a barometer for the true extent of the UK’s commitment to transparency.