The UK’s corporate register is expected to shrink significantly over the next year as new identity verification rules for company directors and beneficial owners come into force on Tuesday, according to specialists in corporate transparency and financial crime.
From 18 November, all new directors and persons with significant control (PSCs) must verify their identity with Companies House before they can form or run a company. Existing directors and PSCs will be phased into the system over the next 12 months, completing verification when they next file a confirmation statement. Acting as a director without verification will become a criminal offence.
The reforms are aimed at tackling fraud, money laundering and the misuse of shell companies by ensuring that “the people setting up, running and controlling companies are who they say they are,” Companies House said. More than one million people have already verified their identities, with up to seven million more expected to complete the process over the next year.
But experts say the immediate impact will be visible in the number of new incorporations — and the size of the UK company register more broadly.
Corporate filings and financial crime expert Graham Barrow predicts that incorporation levels will “fall off a cliff” from Tuesday onwards as those unwilling to disclose their identity drop out of the system.
“There will be a whole bunch of people who have no intention of going through the process,” he said. “We are likely to see a significant slimming-down of the register over the next year.”
Barrow stressed that any reduction should not be taken as a sign of weakening economic activity. “Most of these companies will be linked to people who do not have the best intentions being forced to think again. There is no evidence that the size of the register correlates with legitimate economic impact.”
As of September, the UK’s corporate register listed 5.5 million companies, more than 500,000 of which were already in the process of dissolution or liquidation. Registered agents — including solicitors, accountants and formation agents — will be able to verify clients’ identities on their behalf.
However, Barrow warned that the reforms could fuel a rise in attempts to evade the rules, including the use of “ghost directors” — individuals paid to lend their identity to conceal the real operators of a business. “There has already been a significant increase in British proxy directors being paid to front what are actually overseas-controlled companies,” he said. Payments of around £500 per identity are “not uncommon”.
An investigation by The Times last year uncovered directors being paid to act as fronts for failing companies, enabling true owners to escape scrutiny. Three individuals involved in the scheme have since been banned from running companies.
Alongside identity verification, legal experts say a second major shift is set to reshape corporate governance: a new investigative duty placed on companies themselves.
Hamish Perry, Partner at Charles Russell Speechlys, said businesses must now proactively investigate who their PSCs are.
“From 18 November, companies must take additional steps to identify who their PSCs are, including serving formal notices on anyone they believe may hold that information,” he said. “There is also a duty to notify Companies House where a company suspects someone has become a PSC or relevant legal entity, even if the person hasn’t confirmed it.”
Perry said the changes represent a “significant raising of the bar” for corporate transparency: “Businesses with complex ownership structures or incomplete shareholder information will be particularly affected. They will need to implement clear internal processes to investigate and report their PSCs.”
The reforms coincide with the abolition of statutory registers and more stringent filing requirements, placing companies under far greater scrutiny.
“This is not just a legal change,” Perry added. “It’s a shift towards much greater regulatory accountability.”
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New director verification rules ‘will cut corporate register’, experts warn