What SMEs Need to Know About the Economic Crime and Corporate Transparency Act 2023

While much of the attention has focused on how large companies and foreign entities will be affected, small and medium-sized enterprises (SMEs) should not overlook the significant impact this legislation may have on their operations and compliance obligations.

In this blog, we highlight the key provisions of the Act that SMEs should be aware of and offer practical advice to help you stay compliant and protect your business.

What is the Economic Crime and Corporate Transparency Act 2023?

This Act is part of the UK Government’s broader strategy to crack down on fraud, money laundering, and illicit finance. It builds on earlier reforms introduced under the Economic Crime (Transparency and Enforcement) Act 2022, and grants Companies House enhanced powers, increases transparency in corporate structures, and introduces new criminal offences for businesses that fail to prevent fraud.

Key Changes That Affect SMEs

1. Tougher ID Verification Requirements

All company directors, persons with significant control (PSCs), and those filing on behalf of companies will now be required to undergo identity verification through Companies House. This aims to prevent the misuse of UK corporate structures by anonymous or fraudulent actors.

SME Tip: Make sure your directors and PSCs are ready for ID verification. Start collecting the necessary documentation now and review your records to ensure accuracy.

2. Greater Scrutiny from Companies House

Companies House is no longer a passive registry. It will now have increased powers to query, reject, or remove information from the register if it appears suspicious, misleading, or inconsistent with other records.

SME Tip: Review your filings regularly and ensure all information submitted is accurate and up to date. Mistakes or discrepancies could lead to delays or investigations.

3. Failure to Prevent Fraud Offence

A new corporate criminal offence has been introduced, targeting organisations that fail to prevent fraud by associated persons (such as employees or agents). While this offence initially applies only to large organisations, the Government has indicated it may extend to SMEs in the future.

SME Tip: Now is the time to assess your fraud prevention procedures. Document your internal controls, training, and whistleblowing policies to show a culture of compliance.

4. Increased Transparency in Company Ownership

There will be stricter obligations around the disclosure of beneficial ownership and more frequent checks to ensure PSC information is accurate.

SME Tip: If you operate with a complex ownership structure, consider simplifying or reviewing it to ensure it aligns with the new transparency requirements.

Practical Steps for SME Compliance

1. Conduct a Compliance Audit

   Assess your company’s structure, filings, and governance to identify any areas of concern.

2. Prepare for Identity Verification

   Ensure that all directors and PSCs have valid ID ready. You may need to verify via Companies House or through authorised agents.

3. Train Staff on Fraud Risk

   Even if the failure to prevent fraud offence doesn’t yet apply to your business, instilling strong anti-fraud practices now will serve you well and demonstrate good governance.

4. Update Your Policies

   Review your compliance and risk policies, especially around financial controls, onboarding third parties, and record keeping.

5. Seek Legal Advice if Unsure

   This legislation is complex and evolving. Taking early advice can help avoid costly errors or penalties.