The UK’s residential property landscape is undergoing a significant shake-up, and it’s not just about rising service charges or maintenance issues. The spotlight has also turned to corporate transparency and a new legal framework designed to combat economic crime. The Economic Crime and Corporate Transparency Act 2023 (ECCT Act) received Royal Assent on 26 October 2023, and it’s set to have a profound impact on every company in the UK – including your Residential Management Company (RMC) or Right to Manage (RTM) company.

While it might seem like a distant issue for a small residential block or estate, this new legislation introduces fundamental changes to the way companies are formed and governed. The most pressing change for RMC and RTM directors is the new mandatory requirement for all directors to verify their identity with Companies House.

This isn’t a future problem; it’s a current one. The implementation of the Act is happening in stages, but the clock is ticking, and proactive action is essential. Failure to comply could lead to serious consequences, not just for the company, but for individual directors.

What is the Economic Crime and Corporate Transparency Act 2023?

In simple terms, the ECCT Act is a major legislative overhaul aimed at preventing and disrupting economic crime, such as money laundering and fraud. It represents the most significant change to the role of Companies House since its inception. The Act shifts Companies House from being a passive repository of information to an active and powerful gatekeeper, with new objectives to ensure that the information on its register is accurate and reliable.

The core reforms that will affect your RMC or RTM company include:

• Identity Verification (IDV): This is the biggest change. All new and existing company directors, as well as people with significant control (PSCs) and those who file on behalf of a company, must now verify their identity.
• Enhanced Powers for Companies House: The Registrar of Companies now has the authority to query, reject, and remove inaccurate or inconsistent information from the register. They can also share data with other government departments.
• New Requirements for Registered Office and Email Addresses: Companies must now have a registered office that is a physical address where documents can be received and a registered email address for official communications.
• Stricter Penalties: The Act introduces a range of new financial penalties and criminal offences for non-compliance.

Why Is This Happening? The Bigger Picture

You might be asking why a small, non-profit RMC or RTM company is being swept up in a law designed to fight major financial crime. The answer lies in the UK’s commitment to improving corporate transparency and integrity on a global scale. The government’s goal is to create a more reliable and trusted business environment.

Criminals often exploit opaque corporate structures, using shell companies and falsified information to hide their illegal activities. By making it mandatory for all directors to verify their identity, the government is making it much harder for bad actors to operate anonymously. It’s a blanket approach that applies to all UK companies, regardless of their size or purpose, because the legal structure of an RMC or RTM company is the same as any other limited company.

The Verification Process and What You Need to Know

For RMC and RTM directors, the key action item is to get verified. The process, overseen by Companies House, will link you to a primary identity document, such as a passport or a driving license. There are two main methods for verification:

1. Directly with Companies House: This is a digital process that will likely involve providing your details and a form of photo ID.
2. Through an Authorised Corporate Service Provider (ACSP): You can also verify your identity through a regulated third party, such as a solicitor or accountant.

It is important to note that the Act makes it a criminal offence for an individual to act as a director without their identity being verified. The company itself also commits an offence if it allows an unverified director to act.

Penalties for Non-Compliance

The penalties for non-compliance are severe and underscore the seriousness of this new legislation. They include:

• Criminal Offence: An unverified director will be committing a criminal offence. The company and its officers can also be prosecuted for failing to ensure directors are verified.
• Financial Penalties: Companies House has new powers to issue financial penalties of up to £10,000 for breaches. These can be a fixed amount, a daily rate, or a combination of both, and can increase for repeat offences.
• Director Disqualification: An unverified director could face disqualification.
• Administrative Action: Companies House can annotate the register to show that a director is unverified, which could have a negative impact on the company’s reputation and ability to conduct business.

Why Early Action is Crucial

The implementation of the ID verification process is being phased in. However, waiting until the last minute is not a wise strategy. The government’s transition plan indicates a 12-month period for existing directors to verify their identity from the point the new rules come into force. However, with millions of directors across the UK needing to complete this process, there is a very real risk of significant bottlenecks and delays.

Proactive RMC and RTM directors should:

• Stay Informed: Keep an eye on the official Companies House and government guidance for the latest updates on the implementation timetable.
• Gather Documents: Ensure your personal identification documents, like your passport or driving licence, are up to date and readily available.
• Communicate with Co-Directors: Make sure all directors and any individuals who file on behalf of the company are aware of the new requirements.