New anti-fraud rules introduced at Companies House have led to a sharp fall in the number of new companies being registered in the UK, according to early data, as ministers claim the reforms are starting to take effect.
Weekly incorporations have fallen by about 30 percent since November, when a law took effect requiring all new company directors and those with significant control to verify their identities. Working as a director without proof is now a punishable offense.
The figures show registrations fell from 18,199 in the final week before the rules were introduced to fewer than 13,000 in each of the five weeks before Christmas.
The changes are part of a wider overhaul of the UK business register aimed at preventing long-standing abuses for fraud, money laundering and other financial crimes. Over the next year, the same vetting requirements will be phased in for existing directors and beneficial owners.
Graham Barrow, a specialist in corporate filings and financial crime, described the fall as “quite dramatic” and said it suggested the measures were having their intended deterrent effect. “I expected a significant decline, and it’s definitely 30 percent,” he said. “The level of company startups has included a lot of junk for far too long.”
Anthony Asindi, a senior executive at Ashurst, said the decline showed the scale of the problem the reforms were intended to address. “The sharp decline shows how many shell companies and directors may have previously been entered into the register in an uncontrolled manner,” he said.
But experts warn that while the reforms appear to curb occasional abuse of the system, they are far from completely eliminating fraud. Barrow said there were already signs that bad actors were changing tactics, including an increased use of paid “proxy directors” who sell their verified identities to front companies on behalf of others.
A Times investigation last year uncovered networks of such proxy directors, who were paid to set up funeral bonfires at companies so that their real controllers could escape scrutiny. Three people involved were subsequently banned from acting as managing directors.
Barrow also pointed out vulnerabilities in the system surrounding address verification, arguing that fake or nonexistent addresses remain easy to use. He pointed to examples in County Durham where dozens of directors were registered under implausible house numbers on ordinary residential streets.
“I have repeatedly asked why address verification is not included,” he said. “Simply checking whether an address exists would be a basic but important step.”
Under the new rule, registered agents such as lawyers, accountants and incorporation firms will be able to verify the identities of their clients. Barrow warned that this, too, could become a weak link if oversight is not tightened. “We have companies with unverified directors verifying the identities of others,” he said, adding that regulators would likely take action against agents who failed to carry out proper checks.
At the end of September, there were around 5.5 million companies listed in the British business register, of which more than half a million were in dissolution or liquidation. While the government insists the reforms represent an important step towards cleaning up the register, experts say further action is needed to stay ahead of increasingly sophisticated fraudsters.
