Appendix 1: Economic Crime and Corporate Transparency Bill: Government Response
Letter from Lord Johnson of Lainston CBE, Minister of State (Minister for Investment) for the Department of Business and Trade and Baroness Penn, Treasury Lords Minister for HM Treasury to the Rt Hon. the Lord McLoughlin CH, Chair of the Delegated Powers and Regulatory Reform Committee
Thank you for the report of the Delegated Powers and Regulatory Reform Committee scrutinising the provisions contained within the Economic Crime and Corporate Transparency Bill (‘the Bill’). We are grateful for the feedback of the Committee on the Departments’ Delegated Powers Memorandum. The Government has carefully considered the Committee’s report and our response is set out below.
Clause 64 (previously 65)–Authorised Corporate Service Providers (ACSPs)
The recommendation of the Committeez
The Committee commented on then clause 65 of the Bill (which is now clause 64 in the version of the Bill as amended in Grand Committee), reporting its view that the inserted section 1098G of the Companies Act 2006 should state the reasons why an ACSP may be suspended, rather than leaving it entirely to regulations. The Committee expressed concern that the Bill does not contain a clear indication of the circumstances in which the powers being given to the Registrar to suspend an ACSP will be used.
Government response
We would like to thank the committee for their feedback, which we found very helpful. This gave us cause to reflect on how the Government could tighten and clarify the links between suspension, deregistration, and registration of an ACSP. As a result, we are tabling amendments which reframe these provisions.
The newly tabled Government amendment to the provisions governing applications to become an ACSP compels the Registrar to reject an ACSP application if it appears that the applicant is not a fit and proper person to carry out the functions of an ACSP.
This will give the Registrar greater flexibility to refuse an application for registration where she has concerns about a prospective ACSP, irrespective of whether it is supervised for anti-money laundering purposes. This reframing flows through to the suspension and/or deregistration of ACSPs. For example, the Registrar might deregister an ACSP because it has serially failed to conduct identity verification checks to the appropriate standard, such that it no longer could be viewed as a fit and proper person for the purposes of performing functions conferred on the Companies Act 2006 on ACSPs. If the firm subsequently reapplied to become an ACSP, the Registrar would be able to reject that application, even if the applicant is supervised for anti-money laundering purposes, because she is not convinced that it is fit and proper to conduct IDV checks to the required standard.
We consider listing non-exhaustive circumstances for ACSP suspension to be disproportionately restrictive. Restricting the circumstances on the face of the Bill would be impracticably inflexible and may compel the Registrar to suspend an ACSP where it may not be appropriate to do so. For example, if an ACSP were being investigated for serious fraud offences, suspending them automatically for a false filing offence might unhelpfully draw the attention of the ACSP to the fact that it is being investigated. Similarly, it might be disproportionate to suspend an ACSP from filing if it had committed, but subsequently rectified, a filing error.
Government amendments to the suspension and deregistration process serve to narrow the power to make regulations for suspension of an ACSP’s status so that it is available only pending a decision as to the termination of an ACSP’s authorised status. As with the application stage, we will specify in secondary legislation that the Registrar may suspend an ACSP’s status if it appears that the applicant is not a fit and proper person to carry out the functions of an ACSP. We intend to specify non-exhaustive matters which may go to an assessment that the ACSP is no longer a fit and proper person (this may include, for example, it/its officers’ history of misleading filing offences or whether it/its officers have been prosecuted and/or subject to Registrar-imposed financial penalties for such transgressions).
We hope these amendments and explanation will provide reassurance to the Committee.
Clause 181 (previously 174)–High Risk Third Countries
The recommendation of the Committee
The Committee drew attention to then Clause 174 (2) and (3) of the Bill (now clause 181 of the Bill in the version as amended in Grand Committee).
The Committee was not satisfied with the arguments in favour of the High Risk Third Countries list being updated administratively, as opposed to through secondary legislation, as laid out in the Delegated Powers Memorandum, and considered that this measure should be removed from the Bill.
Government response
The Government understands the Committee’s concerns and has considered carefully their recommendation. The Government is consequently tabling amendments at Report Stage in the Lords which will amend the drafting so that Parliamentary scrutiny of Government decisions on high-risk third countries will be retained in instances when the UK’s list deviates from countries identified by the Financial Action Task Force (FATF).
It is the Government’s view that this amendment will address the concerns raised by the Committee whilst also meeting the Government’s objectives in this area. For instances where the UK directly mirror’s FATF’s updates this amendment will allow the Government to publish a FATF-aligned administrative list, which would significantly streamline the process and ease pressures on Parliamentary and Ministerial time. At the same time, it would retain the need to update a separate statutory list via a negative SI, if the Government’s list were to derogate from the FATF findings at any point.
When these powers were first introduced in 2018, the Money Laundering Regulations continued to directly refer to the EU’s high risk third countries list. This was the case until introduction of the UK’s autonomous High Risk Third Countries list in early 2021. Since then, the Government has taken through six statutory instruments to update the list. This process can take up to four weeks, and on occasion several months, for each SI and requires up to three statutory instruments and six Parliamentary debates a year. All the SIs since 2021 have passed with minimal debate in both Houses. We had introduced the original measure to reduce the pressure on Parliamentary time and the legislative timetable, as well as further expediting the process to provide clarity to businesses. However, we recognise the Committee’s concerns regarding scrutiny of the list, and as such will be tabling the amendments outlined above.
The Government’s policy is to continue mirroring countries identified by the FATF in the UK’s High Risk Third Country list and there are no intentions for this policy to change. This amendment will ensure that Parliament retains the ability to scrutinise instances in the event that the power was to be used to deviate at any point from FATF decisions.
We are grateful to the Committee for their consideration and, if helpful, would welcome a further meeting to discuss the Government’s response further. We will continue to notify the Committee of further updates to the Delegated Powers Memorandum in the usual way. We are placing a copy of this letter into the House library.
13 June 2023