Companies House’s new rules to prevent fraud have sparked a dramatic fall in new company registrations.
As of 18 November, a new law came into effect requiring company directors to verify their identity, with failure to do so carrying enforcement risks.
The new rules were part of Companies House’s new ID powers, which aim to make it more difficult for individuals to establish companies or appoint directors using fake or stolen identities.
The powers come under the Economic Crime and Corporate Transparency Act, allowing the agency to take a “proportionate approach to enforcement”, including financial penalties, referrals to the Insolvency Service, or prosecution in court.
Speaking at the time, small business minister, Blair McDougall, said: “When companies can trust the information on the Companies House register, they can make better decisions about who they work with.”
Now, as reported by The Times, weekly company registrations have declined by about 30 per cent since the implementation of measures came into effect.
The weekly figures for incorporations dropped from 18,199 in the week before the rules came into effect to fewer than 13,000 in each of the five weeks leading up to Christmas.
Dramatic drop, but rise in fake addresses
Graham Barrow, an expert in corporate filings and financial fraud, told The Times: “So far, it seems like the legislation has been impactful.”
“I expected a significant drop, and 30 per cent or so is certainly that. It’s long overdue. The level of company incorporations has included a lot of crap for far too long,” he added.
However, he stated the changes had not “got rid of the problem, and there are signs the tactics of those who wish to abuse the registry are changing”.
One of his examples was an increase in the use of “paid-for proxy directors,” who effectively sold their identities to mask the true operators of companies.
This comes as the legislation did not tackle the use of fake addresses.
As of the end of September, there were 5.5m companies on the register, but more than 500,000 of those were in the process of dissolution and liquidation.
As reported in July, over 11,000 businesses were also struck off the Companies House register following a coordinated crackdown on corporate structures suspected of facilitating fraud, money laundering and other economic crime.
Companies House’s five-year strategy includes the aim by 2030 to “be the trusted guardian of corporate transparency, acting as a catalyst for economic growth, whilst protecting businesses and people from harm.”