The Economic Crime and Corporate Transparency Act 2023 (the “Act”) is a landmark piece of legislation which was introduced by the UK government with the aim of combating economic crime and enhancing corporate transparency. The Act introduced significant changes to the regulatory environment for UK corporate entities. This article examines the key aspects of the Act and its relevance to UK Limited Liability Partnerships (LLPs) in particular. For further details around the relevant of the Act on UK companies, please refer to our previous article available here.

Enhanced Reporting and Disclosure Requirements

One of the most important changes brought about by the Act is the introduction of enhanced reporting and disclosure obligations for LLPs. The Act mandates that LLPs provide more detailed and accurate information regarding their ownership structures, including the identification of beneficial owners. Previously, UK regulations were often criticised for allowing opaque ownership structures that could be exploited for illicit purposes. These new requirements are said to represent a significant shift towards greater transparency.

Whilst not yet in force, Companies House will be introducing in due course, a new identity verification process and all existing and new members of LLPs shall be required to verify their identify as part of this process. Anyone acting on behalf of the LLP will also be required to verify their identity before they will be able to make any filings at Companies House.

As is the case now, LLPs are required to disclose the identities of persons with significant control (PSCs). These PSCs will also need to undergo the verification process noted above.

Administrative Impact on LLPs:

These new obligations will inevitably increase the administrative burden on LLPs. We suggest that LLPs act now to ensure that they have systems in place to allow them to track and report changes in membership promptly as required by the Act. Having such systems in place will also allow LLPs to be well prepared in the event they are required to respond to inquiries from regulatory bodies regarding their ownership structures and control arrangements.

Stricter Penalties and Enhanced Enforcement Measures

It is important that the relevant systems are put in place now more than ever as the Act introduces stricter penalties for non-compliance and empowers enforcement agencies with greater authority to investigate and prosecute economic crimes. These powers are intended to deter non-compliance and ensure that LLPs adhere to the new transparency and reporting requirements.

Penalties for Non-Compliance:

LLPs that fail to meet the new reporting and disclosure requirements, or that are found to be involved in economic crimes, face harsher penalties under the Act. These penalties include significant fines and potential criminal charges against individuals involved in the management of the LLP. The risk of substantial financial and reputational damage is a strong incentive for LLPs to ensure full compliance with the law.

Enhanced Powers for Regulatory Agencies:

The Act also grants greater investigative powers to agencies such as the Financial Conduct Authority (FCA) and HM Revenue and Customs (HMRC). These agencies are now authorised to conduct more thorough investigations, including the power to compel LLPs to produce documents and information relevant to their inquiries. This increased scrutiny is expected to deter illegal activities, but it also means that even compliant LLPs must be vigilant in maintaining robust governance and compliance frameworks.

In light of these enhanced powers, LLPs should also anticipate increased scrutiny of their financial transactions to detect and prevent money laundering activities. More stringent due diligence processes will likely become necessary to meet these new regulatory standards.

Practical Steps for LLPs to take in light of the current regulatory regime

  1. Review and Update Internal Policies: LLPs should begin by thoroughly reviewing their current internal policies on financial reporting, compliance, and the disclosure of beneficial ownership. Updating these policies will ensure alignment with the new requirements.
  2. Enhance Compliance Programs: Developing robust compliance programs that incorporate the new mandates is essential. This should include regular training for partners and staff on the new compliance requirements and procedures.
  3. Implement Advanced Financial Monitoring Systems: Investing in advanced financial monitoring and reporting systems can help LLPs track their financial transactions more accurately. These systems should be capable of generating detailed reports that meet the enhanced reporting requirements.
  4. Conduct Internal Audits: Regular internal audits can help identify potential areas of non-compliance early. LLPs should consider engaging external auditors to provide an additional layer of scrutiny and assurance that their systems and processes meet the new standards.
  5. Update Beneficial Ownership Registers: Maintaining an up-to-date beneficial ownership register is crucial. LLPs should ensure that this information is readily accessible and regularly reviewed to meet the ongoing disclosure requirements.
  6. Registered Office Address: All LLPs are required to have an “appropriate” registered office address. Companies House now specifically forbids the use of a PO Box for this purpose. The key focus is on ensuring that any correspondence or document sent to that address will come to the attention of a person acting on behalf of the LLP, and that delivery can be acknowledged.
  7. New Requirement to supply a Registered Email Addresses: AllUK LLPs will also need to provide a registered email address to which Companies House can send communications. New LLPs must do this on incorporation and existing LLPs when they file their next annual confirmation statement.

Conclusion

The Act introduces significant changes to the regulatory landscape for LLPs. By imposing stricter reporting and disclosure requirements, enhancing enforcement measures, and aligning with international standards, the Act aims to create a more transparent and accountable corporate environment in the UK.

To navigate this new regulatory environment successfully, LLPs must stay informed about their obligations under the Act and take proactive steps to ensure compliance. By doing so, they can mitigate the risks of non-compliance and position themselves as leaders in corporate transparency and ethical governance.

Contact us

If you have any questions about these matters in relation to your own organisation, please contact a member of the professional services team or speak to your usual Fox Williams contact.


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