Select Committee on Business and Enterprise Thirteenth Report


Conclusions and recommendations


CHIPS

1.  We are concerned that there were initial teething problems with Companies House Information Processing System (CHIPS) which resulted in a deterioration of some services to dissemination agents. We trust that all services are now of a similar or higher standard to that offered before the rollout. IT systems should result in an improvement of service to all customers: we would be concerned if that were not the case. (Paragraph 19)

Companies Act 2006

2.  The delay to the Companies House Information Processing System (CHIPS) has resulted in delays in bringing parts of the Companies Act 2006 into force. This is disappointing and the large amount of public money wasted on the original contract is deplorable. Nonetheless we believe Companies House and BERR were right to postpone commencement of these sections of the Act, rather than to press ahead and risk disrupting thousands of businesses if implementation proved impossible. (Paragraph 22)

Status of Information filed at Companies House

3.  We believe that the Companies Act 2006 could have given greater rectification powers to the Registrar of Companies to remove incorrect information from the register without having to resort to the courts. (Paragraph 24)

4.  We recommend that Companies House takes every opportunity to make clear that its primary function is to publish the information it receives, and that it cannot guarantee the accuracy of the information. It needs to amends its website and other published material to reflect this reality as a matter of urgency. (Paragraph 26)

Disqualified directors

5.  The number of companies Companies House incorporates, 120 every working hour, may mean that it cannot thoroughly scrutinise every name that appears on the register. Where it appears that a mistake has been made, the onus must be on concerned individuals and organisations to report disqualified directors to Companies House for further investigation by the Insolvency Service; the Insolvency Service needs the resources to do its part. Any information available to the relevant authorities relating to disqualified directors that is not acted upon in a timely fashion will bring the whole register into disrepute, especially if the information concerns serious offences or malpractice. (Paragraph 32)

More stringent checks on directors?

6.  We understand why it would be desirable to have more thorough vetting of directors and we note the British Bankers' Association's suggestion that directors' details should be checked by Companies House against other government held data. However, the principles of data protection need to be abided by and the practicalities of such scrutiny considered. Moreover, we recognise that Companies House's primary function is to maintain its register and make it available to the public and this would be a move away from its statutory role. Given the volume of information handled, such vetting could have considerable costs. There is also a danger if only partial checks were made, users of the data could be given false confidence in its reliability, rather than knowing, as now, that Companies House simply acted as publisher. Nonetheless, we recommend that a cost-benefit analysis is conducted of available ways to increase the level of checks on directors and, in particular, to make it harder for disqualified directors to evade detection by small changes in their details. (Paragraph 33)

Company accounts

7.  We understand why Companies House did not include information on the preparation of accounts when it first arranged to publish them online. However there would be real benefits in giving this information in the future. We cannot believe that there is any significant technical barrier or extra costs to indicating the involvement of a professional accountant on electronically filed accounts. We also support the Professional Oversight Board's suggestion that accountants should be notified of the filings, in which they are named, to prevent them being falsely associated. We urge Companies House and the Professional Oversight Body to resolve these issues as soon as possible. The accountant identified as responsible for filing the accounts should then take full responsibility for the accuracy of the information contained in them. Notwithstanding our recommendation in paragraph 26, this would enable users of Companies House data to have much greater confidence in its reliability without placing any additional burden on the companies whose information is recorded there, or on Companies House itself. (Paragraph 37)

Identity fraud and 'company hijack'

8.  We understand the rationale for the withdrawal of the permanent police presence at Companies House, but are nervous about this apparent reduction in the overall anti-fraud effort. We recommend that Companies House and both the Metropolitan and City of London Police forces conduct regular assessments of the skills and knowledge of the staff at Companies House in relation to the opportunities for fraud. We also expect the possibility of reinstating the permanent police presence to be kept under continuous review. (Paragraph 39)

9.  We are pleased that Companies House is continuing to work with the police in developing its intelligence role and is contributing to data sharing among the UK's law enforcement agencies. The effectiveness of these working arrangements must be reviewed regularly. (Paragraph 40)

10.  There is clearly a balance to be struck between making the register useful to those who are attempting to prevent crimes such as money laundering, while preventing it being useful to those attempting to commit other crimes such as fraud. This balance should be frequently reviewed and legislation amended as necessary. (Paragraph 43)

11.  We would have liked to have seen more urgency in increasing take-up of electronic filing considering the targets have never been met. We are disappointed that there is no new campaign to encourage electronic filing until June 2009. (Paragraph 47)

12.  There are difficulties in balancing the need to provide an accessible, efficient, open register of companies details at a reasonable cost and the need to have systems to reduce the opportunities for crime. The evidence presented suggests that there could be merit in a review to assess whether Companies House could do more to prevent crime without compromising its core functions. Such a review could include a risk assessment to identify whether particular types or sizes of companies are more vulnerable to fraud, or more commonly used as vehicles for fraud than others and if so whether there are cost effective targeted interventions which could reduce the risks such as by asking for annual verification of information submitted. (Paragraph 48)

Companies House and the market

13.  We understand that the border between providing core services to the public and unfairly competing with the private sector is not crystal clear. However, we do not believe this means a public organisation should never seek to improve its services or that it should be deterred from introducing facilities to reduce fraud. We believe that Companies House has currently got the balance broadly right, but it must be exceptionally careful, as it strives to make its payments to the Treasury, that it does not abuse its position. The Treasury, it follows, must not make unreasonable financial demands of Companies House. (Paragraph 53)

14.  Companies House facilitates "do-it-yourself" incorporation if paper is used: it is logical for it to offer this service electronically as well. Here, again, the issue is transparency for those who use the services of Companies House. The advantages and disadvantage of using the service offered by Companies House should be made clear. (Paragraph 56)

15.  The Committee understands the frustrations for incorporation agents of having to carry out "due diligence" when incorporating when Companies House does not. Nonetheless we do not believe that Companies House's role should be extended to scrutinise the businesses they are incorporating. However the register should show where an incorporation agent had been used as opposed to an "off-the-shelf" incorporation and also indicate the different levels of assurance that this provides. (Paragraph 58)


 
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