• The Government publishes draft regulations providing more detail on director and PSC identity verification
• The Government publishes a report on its progress in implementing reforms under the Economic Crime and Corporate Transparency Act 2023
• The Digital Markets, Competition and Consumer Act 2024 becomes law, introducing changes to the UK’s merger control regime
• The EU’s Corporate Sustainability Due Diligence Directive is finally adopted
• ESMA publishes a statement of good practice for avoiding disclosure of inside information on pre-close calls

Draft company identity verification legislation published

The Government has published draft regulations outlining how individuals, including directors and persons with significant control (PSCs), will be able to verify their identity.

Under changes made by the Economic Crime and Corporate Transparency Act 2023, certain individuals will be required to verify their identity. This includes directors and PSCs of UK companies and general partners of UK limited partnerships.

Last week, the Government published draft Registrar’s Rules setting out the evidence an individual will need to supply to verify their identity. You can read our previous Corporate Law Update for more information on the documentation required for identity verification (IDV).

Alongside this, the Government has published draft regulations setting out the process for IDV. The key points are as follows:

• An individual will be able to verify their identity directly with Companies House or alternatively through an authorised corporate service provider (ACSP). (An ACSP is one of several regulated service providers that has been authorised by Companies House to make filings.)
• To do so, the individual will need to provide their name and date of birth, any former names, and the information required by the Registrar’s Rules. As we explained last week, this means a valid email address, a current residential address and supporting evidence of identity.
• Companies House will have the power to require an individual to reverify their identity if any of the information on which Companies House or the ACSP relied was false, misleading or deceptive in any material way. The individual will generally have 42 days to reverify their identity.
• Where an ACSP conducts IDV, the ACSP will need to keep records for seven years. This applies whether or not the ACSP ultimately concludes that it is able to verify the individual’s identity.

The draft Regulations also set out when Companies House will be able to suspend, or even cancel, a provider’s status as an ACSP.

The Regulations are drafted to come into force in due course when the IDV and ACSP regimes come into effect.

Access the draft Registrar (Identity Verification and Authorised Corporate Service Providers) Regulations 2024

Government sets out progress on economic crime and transparency reforms

The Department for Business and Trade (DBT) has published a progress report on the implementation of aspects of the Economic Crime and Corporate Transparency Act 2023 (the ECCTA).

The report covers Parts 1 to 3 of the ECCTA, which implement reforms to company law and limited partnerships in the UK, as well as the UK’s Register of Overseas Entities.

It summarises regulations already made under the ECCTA, as well as regulations that, at the time the report was written, were shortly to be made. (Some of these have since been made or laid in draft.)

In relation to the Register of Overseas Entities, the report confirms that the Government intends to lay further regulations setting out who will be able to access trust information that is otherwise suppressed from public view. It also intends to make regulations requiring beneficial owners that are themselves legal entities to explain where information about their ownership and control can be found.

More generally, the report promises a full implementation timetable in due course. For the time being, it notes that the Government intends to:

• allow authorised corporate service providers (ACSPs) to begin registering from Winter 2024;
• commence the new identity verification procedures in H1 2025; and
• introduce reforms to limited partnerships in 2026.

Read the Government’s progress report on implementing economic crime and transparency reforms (opens PDF)

Merger control changes become law

The Digital Markets, Competition and Consumer Act 2024 has become law.

Among other things, the Act implements changes to the UK’s merger control regime proposed by the Government in April 2022. (See our previous Corporate Law Update for more information.) These include the following.

• Raising the “turnover test” threshold. The Act raises the “turnover test” threshold from £70m to £100m (to account for inflation). Acquisitions of target businesses with turnover above this threshold may be subject to scrutiny by the Competition and Mergers Authority (CMA).
• New “combined test”. The Act introduces a new test (focused principally on acquisitions by large companies) under which a merger may be subject to scrutiny if:
  • one of the merging parties has both a share of supply of at least 33% of a particular category of goods or services in the UK (or a substantial part of the UK) and UK turnover of more than £350m; and
  • at least one other merging party is formed or recognised under UK law or carries on activities in the UK or supplies goods or services to customers in the UK.
• De minimis exemption. A merger will fall completely outside of the UK merger control regime if the UK turnover of each merging party is less than £10m.

The Act also formalises the process under which parties may ask the CMA to “fast-track” a merger direct to an in-depth investigation (avoiding the need for the usual 40-working day review period).

The Act is not yet in force and will need to be brought into effect using commencement regulations.

Read the Government’s press release on the Digital Markets, Competition and Consumer Act 2024

EU adopts long-anticipated corporate sustainability legislation

The Council of the European Union has formally adopted the EU’s new Corporate Sustainability Due Diligence Directive (CSDDD), making the final stage in the negotiation and adoption process.

Under the Directive, companies would need to carry out targeted due diligence on their own operations and those of their subsidiaries and partners.

This would include identifying actual or potential adverse impacts on human rights and the environment, taking measures to prevent and mitigate identified impacts, and reporting publicly on those measures.

Companies within scope could be liable to pay compensation if they fail to take mitigating action and, as a result, a person suffers damage.

The Directive has been the subject of intense and polemic discussion between the Council and the EU Parliament, with the Council taking the unusual decision in March 2024 to block a previous version endorsed by the Parliament (see our previous Corporate Law Update).

It will now proceed through the final formalities to become law, following which EU Member States will have two years to implement it into their domestic law.

The Directive will come into effect under a phased approach, applying to EU companies under the following timeline according to the company’s employee headcount and worldwide turnover:

• more than 5,000 employees and more than €1,500m turnover – 3 years after coming into force;
• more than 3,000 employees and more than €900m turnover – 4 years after coming into force; and
• more than 1,000 employees and more than €450m turnover – 5 years after coming into force.

The same tests would apply to non-EU companies, but based solely on turnover generated within the EU and with no employee headcount test. (So, for example, after five years, the Directive would apply to a non-EU company with net turnover generated within the EU above €450m.)

Read the Council of the EU’s press release on the adoption of the CSDDD

ESMA issues reminder of good practice for pre-close calls

The European Securities and Markets Authority (ESMA) has published a statement reminding issuers of good practice when conducting “pre-close calls”.

A pre-close call is a communication session between an issuer and a research analyst which takes place immediately before the period leading up to the publication of the issuer’s financials. (These could be year-end or interim financials.)

The statement reminds issuers of restrictions on the disclosure of inside information under the EU Market Abuse Regulation, and that issuers should not disclose inside information on pre-close calls.

Where an analyst does receive inside information through a pre-close call, ESMA advises the analyst to contact the relevant national competent authority without delay.

The statement sets out certain recommended practices designed to mitigate the risk of disclosing inside information on a pre-close call.

ESMA’s statement and the EU Market Abuse Regulation do not apply in the UK (although they do apply to UK issuers with securities admitted to an EU market). However, the Market Abuse Regulation continues to form part of UK law in a domestic form, and the statement is nonetheless good advice for issuers with securities admitted to a UK market.

Read ESMA’s statement of good practice for pre-close calls (opens PDF)