Financial Institutions set to face significant costs for identity verification of shareholders

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The Economic Crime and Corporate Transparency Act (ECCTA) which came into force in October 2023, includes identity verification (IDV) requirements for directors, persons of significant control (PSCs) and shareholders, with the aim of improving the usefulness of company information held by the registrar i.e. Companies House.  

Whilst most financial institutions are aware of the EECTA and the Companies House reform, many might not realise that IDV of all new and existing registered company directors, PSCs, shareholders, and those delivering documents to the Registrar is the costliest element of the reforms.

Indeed, a Department of Business and Trade report estimates that the introduction of IDV for all shareholders could have a net annual direct cost of business of up to around £154 million.

A bit of background

The ECCTA strengthens the UK’s efforts to combat economic crime via a wide-ranging suite of reforms. These include new and enhanced powers for Companies House to scrutinise information provided by companies and their directors, taking it from turning it from a largely passive recipient of company information to a much more active gatekeeper. Companies House now has enhanced abilities to verify the identities of company directors, remove fraudulent organisations from the register, and share information with criminal investigation agencies.

Why so costly?

The introduction of IDV is the costliest element of the Companies House overhaul, making up around 75% of the estimated cost in the reform package.

Companies currently only must provide shareholder names and limited information about shareholdings to Companies House. Providing any further information comes at cost:  

• Understanding this policy change and collecting additional information on shareholders to submit to Companies House. Estimated to cost £787 million in year one (£160 per company) and £89 million annually (£20 per company)
• Shareholders having to understand and take part in the identity verification process or confirm they have already been verified as PSC / director. Estimated to cost £54 million -£130 million for the current stock of shareholders and £6 million-£21 million annually for the new flow, or around £8-£14 per shareholder.
• Familiarisation costs i.e. cost to understand that shareholders will need to be identity verified and the processes associated with that – approx. £94.90 per shareholder
• Ongoing costs – continuously collecting, collating and submitting additional information to Companies House going forward on their shareholders - £18 per company per year

And we’re not just talking big companies here, or shareholders with majority stakes. The government’s position is that, under the Act, if a minority shareholder – however small their shareholding - exercises significant influence or control in a company, they will be required to verify their identity.

How to reduce the IDV cost burden

Adding to the cost burden is the fact that many financial institutions are currently using either heavily manual IDV processes or a plethora of disparate tools.  

This also presents possibly the biggest opportunity to reduce the IDV cost burden and boost the ability to meet the requirements of the ECCTA. In fact, 65% of corporate risk and compliance professionals believe that using technology to streamline and automate manual processes helps reduce the complexity and cost of compliance.

W2 by FullCircl is a single IDV platform to help you simplify the compliance process and meet regulatory requirements. We provide access to robust data to assist with real-time access to reliable, up-to-date information on directors, PSCs and shareholders including, but not limited to:

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• ID and age verification
• PEPs and sanctions screening
• Automated and manual document verification
• Facial comparison
• Address Lookup
• Email risk assessment
• Salacious name checks
• Director lookups and disqualified director data
• Affordability checks (for the gambling and gaming industries)

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Find out more about the IDV requirements under the EECTA and their costs here.

Want to know more about IDV solutions and their benefit to your business? Download our free Buyers Guide to IDV Software.