By Adam McLaughlin, Global Head of AML Strategy and SME, NICE Actimize
Gaps in financial crime legislation and controls have created opportunities for criminals to hide in the void between organisations and behind corporate entities and opaque digital identities. The upcoming U.K. Economic Crime and Corporate Transparency Bill could be one way to fight these weaknesses and revolutionise how we fight financial crime. The ground-breaking bill is intended to strengthen data sharing between the public and private sectors, create stricter regulations on company registration, and reform limited partnerships to develop a more robust defence against criminal activity.
What do financial crime and compliance professionals need to understand about this bill? The Economic Crime and Corporate Transparency Bill was first introduced in the U.K. House of Commons on 22 September 2022. It comes hot on the heels of the Economic Crime Act of 2022, which introduced broad sweeping reforms of ultimate beneficial ownerships (UBO) identification for high-value properties owned by corporate entities.
The new bill passed through both U.K. parliamentary bodies, the House of Commons, and the House of Lords. It is now awaiting royal assent, the formal process through which the King agrees to turn a bill into law. As the latest in a raft of game-changing legislation, this bill will make it harder for criminals to succeed and finally give the good guys some teeth to help fight financial crime.
The Economic Crime and Corporate Transparency Bill will impact three key areas—information sharing, company registration, and limited partnership reform. These focus areas will result in greater information sharing at financial institutions (FIs), higher-quality corporate registry information that can be used during onboarding and for perpetual KYC (pKYC), and the need for greater monitoring of limited partnerships.
Key Area: Information Sharing
The main emphasis of the bill is on enhanced private-to-private and private-to-public information sharing. Currently, data sharing is limited because the existing legislation is voluntary and lacks firm guidance. Current information sharing gateways are open for interpretation and can be interpreted differently by various legal teams. This often results in limited, or no, information being shared between relevant parties because legal teams will err on the side of caution.
The proposed bill aims to change this by providing clearer gateways and stronger legislation to enable better private-private and public-private information sharing.
In essence, the bill will grant legal immunity from civil liability when sharing information pertaining to suspected financial crime. Law enforcement will also be permitted to proactively gather intelligence from FIs on suspected illegal activity without needing a pre-existing Suspicious Activity Report (SAR) from the organisation.
This change allows organisations to share sensitive information without fearing reprisal— if the sharing is done in the spirit of the law. This new structure is expected to help FIs, and law enforcement prioritise high-risk cases by allowing information about high-risk entities and those potentially linked to financial crime to flow more freely between organisations and be escalated to the right teams. It is also expected to reduce the reporting burden on FIs, as they will have much more accurate information on suspicious and non-suspicious entities and be able to make better decisions on who to report.
Company Registration Reform
The bill proposes the largest reform of Companies House, the official Registrar of U.K. businesses, and the U.K. company incorporation process since its inception in 1844. Under the new rules, companies must verify the identity of all new and existing directors, persons with significant control and those delivering documents, resulting in more accurate and up-to-date information on the company registry.
Companies House, under the new legislation will now have the authority to check registrations, challenge discrepancies and reject information submitted to or already on the company’s register. This will help Companies House become an active gatekeeper. They can identify if there is suspicion of criminal activity or if the company provides insufficient, conflicting information or fails to sufficiently answers questions raised during registration or about existing registration information, and act accordingly. This change will be the first of its kind globally and deter criminals seeking to use opaque and complex U.K. company structures as a front for illicit operations.
Finally, Companies House will have greater powers to share information, helping to cross check data with other public and private-sector bodies. It will be able to proactively share information with law enforcement agencies when there is evidence of suspicious activity or anomalous filings.
The changes to Companies House will result in more accurate and complete register information. Therefore, organisations can rely more on it for KYC and other verification and validation checks. With Companies House having the power to be a proactive gatekeeper of information, organisations using the data can make better business decisions and more quickly identify discrepancies between data provided during onboarding or remediations and data provided on the company’s register.
Limited Partnership Reform
Another area targeted by the legislation is the reform of limited liability partnerships (LLPs). The goal of the LLP reform is to make it more difficult for criminals to exploit the structure of limited partnerships for illicit purposes.
In this reform provision of partner information, including personal details like name, date of birth, nationality, any former names, and residential address, becomes mandatory. General partners will also need to provide a service address. For a partner that is a legal entity, the information required includes their registered or principal office address and a service address. A general partner who fails to notify the Registrar of partnership changes within in 14 days will commit an offence and be liable to a conviction which could result in a fine.
Additionally, the bill states that limited partnerships must always have a registered office within the U.K., as opposed to the current model where the office can be based anywhere in the world. The Registrar for Companies will have the power to request a change the registered office of a U.K. limited partnership if it deems that the given address is not an appropriate address as defined by the Bill.
Another legislative change is that an LLP must have at least one individual appointed as a registered officer. A general partner of an LLP cannot just be a corporate vehicle or another LLP. This registered officer cannot be a disqualified director and must be contactable by the Registrar. Limited partnerships must file annual confirmation statements, ensuring accurate and up-to-date information is reported to Companies House. This brings LLPs’ requirements in line with those adopted for U.K. limited companies (LLCs). LLPs must file their annual confirmation statements within 14 days of when the annual report is due.
There are many other new changes under this bill, but to manage an organisation’s risk when the new legislation becomes law, it must ensure that any LLPs on the books are compliant with the new legislation, checking that: they have a U.K. registered office; that there is at least one individual appointed as a registered officer; and they are filing annual confirmation statements.
Organizations should make sure that a customer’s KYC record is updated with this new information. It is not an organisation’s responsibility to enforce these requirements, but any LLP customer who fails to conform to the new legislation should become a high-risk customer and questions should be asked why the LLP is failing, willingly or not, to meet the new legislation. It could be because the LLP is a criminal entity which, up until that time, was exploiting the existing LLP structure loopholes.
Organizations should also be monitoring the transactions of LLPs to identify any suspicious transactions which could suggest they still maintain a suspicious or complex offshore structure.
Impact of New Legislation & Technology
The impact of the Economic Crime and Corporate Transparency Bill on fighting financial crime cannot be overstated. It represents a new era in legislative response and is a testament to the ongoing commitment of authorities to fight financial crime and protect the integrity of the financial system.
By strengthening data sharing between the public and private sectors, tightening regulations on company registrations, and adding robust reforms for limited partnerships, this legislation represents a significant step forward in the fight against money laundering and other financial crimes. The bill’s success, however, ultimately depends on its effective implementation and the collaboration of all involved parties. As other countries take note of the U.K.’s progress, the hope is that pioneering legislation like this will inspire similar action worldwide, paving the way for a truly global effort to combat financial crime.
Technology can help organisations maximise the benefit of these changes in their risk and compliance programs. Firms can use technology to aid in information sharing, whether that be sharing new detection models and typologies or suspicious activity information, or to automatically update customer records with the latest corporate or LP information from Companies House. Technology can ensure that firms are maximising the value of the richer corporate registry information to identify, manage and mitigate customer risk.