Economic Crime and Corporate Transparency Act: What financial institutions need to know

What has happened? 

In October 2023, the Economic Crime and Corporate Transparency Act (the ECCTA) received Royal Assent. ECCTA forms part of the UK Government’s wider economic crime plan which aims to limit the proceeds of crime coming into the UK by tightening up certain areas of legislation. Details here.

What are the points of the Act?

The main target of this Act is organised crime, although it is likely to have a significant impact on financial institutions, as we summarise below.

Failure to prevent fraud

This Act updates the law surrounding the ‘identification doctrine’, which is a legal test from 1971. This test decided whether the actions and minds of a natural person can be regarded as those of a legal person. The current law requires that an offence must be committed by the “directing mind and will” of a corporation to trigger attribution to the corporation itself. If the person(s) identified as the “directing mind and will” of the corporation commits a criminal offence in that capacity, that offence, including the guilty mind to commit the offence, is considered to be that of the corporation.

An organisation will now be guilty of a "relevant offence" if that offence is committed by a "senior manager" of the organisation acting within the actual or apparent scope of their authority. Firms could now be at risk of receiving unlimited fines for failing to prevent fraud. However, this will only apply to large firms and not to SMEs.

Also, this includes in its scope only bribery, fraud and false accounting, while money laundering is covered under existing regulatory schemes.

Therefore, to avoid prosecution, financial institutions should ensure they have reasonable procedures in place to prevent fraud. The UK Government reports that it will be providing further guidance on what would be considered ‘reasonable’.

Data sharing between firms

To further support AML, the Act allows for greater data sharing between firms in cases of suspected fraud, money laundering, and other economic crimes.

The ECCTA will enable proactive intelligence gathering by law enforcement and strengthening the National Crime Agency’s Financial Intelligence Unit’s ability to obtain information from businesses relating to money laundering and terrorist financing by removing the requirement for a pre-existing Suspicious Activity Report (SAR) to have been submitted before an Information Order can be made.

There will be a shift of focus to “high value” activity, reducing the reporting burden on firms and enabling greater prioritisation of law enforcement resources by expanding the types of cases in which businesses can deal with clients’ property without having to first submit a Defence Against Money Laundering (DAML) SAR.

Companies House reform and limited partnerships reform

The Act aims to improve transparency in UK companies by reforming the role of Companies House. According to the UK Government, these reforms include:

• Identity verification for all new and existing registered company directors, People with Significant Control, and those delivering documents to the Registrar,
• Broadening the Registrar of Companies House’s powers so that the Registrar can become a more active gatekeeper over company creation and custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the companies register,
• Improving the financial information on the register so that the register is more reliable, complete and accurate, reflects the latest advancements in digital technology, and enables better business decisions,
• Providing Companies House with more effective investigation and enforcement powers and introducing better cross-checking of data with other public and private sector bodies,
• Enhancing the protection of personal information provided to Companies House to protect individuals from fraud and other harms, and
• Broader reforms to clamp down on misuse of corporate entities.

In line with these reforms, the UK Government has also made changes to limited partnerships, by:

• Tightening the registration requirements,
• Requiring limited partnerships to maintain a connection to the UK,
• Increasing the transparency requirements, and
• Enabling the Registrar to deregister limited partnerships which are dissolved, are no longer carrying on business, or where a court orders that it is in the public interest to do so.

Cryptocurrency

The ECCTA provides additional powers to law enforcement to quickly seize and recover cryptoassets which have been linked to the proceeds of crime or associated with illicit activities such as money laundering, fraud, and ransomware attacks.

Insights: 

“This is a big turning point for financial crime prevention. These reforms were debated for over a year and, whilst they aren’t perfect, the Act is a big step forward. Companies House reform and better data sharing is much overdue, and the failure to prevent fraud requirements should spark a change in corporate culture. However, the effectiveness of the Act will rely on strong enforcement – which we will have to wait to see.”

Jessica Cath - Head of Financial Crime

How can we help you with FCA compliance? 

Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as-and-when, our team of specialists can serve as your right hand in meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with your financial crime arrangements, or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.