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New security checks for company formations – designated persons (DPs)

What the new checks mean for firms involved in the formation of corporate identities for 3rd parties.

It was announced at the beginning of December 2018 that additional ‘application checks’ would come into force with immediate effect at Companies House when requesting a new company formation. The checks are to identify ‘designated persons’ or DPs for short – a term used to identify individuals with financial sanctions imposed upon them by the United Nations (UN). But why now and what does it mean for legal, accounting, financial services or in fact any firm involved in the formation of corporate identities for 3rd parties?

The UN impose financial sanctions on individuals and corporate bodies because of the nature of their activities, such as humanitarian crimes and terrorism. These individuals and corporate bodies are called ‘designated persons’ (DPs) and the sanctions are designed to restrict access to economic resources, thus reducing capacity to fund their operations. The sanctions are included in EU and UK law. The formation of a company could allow a DP to begin trading in some form (even if the suggested activities and SIC codes appear benign) - providing this service to a DP would constitute as making an economic resource available to them.

The checks apply to all personnel registered in relation to a new company formation, be it PSCs, Directors, Members or Secretaries. The following entity types will be affected:

  • UK companies (private, public, limited, unlimited, limited by shares, limited by guarantee)
  • European companies, known as societas Europaea (SEs)
  • Limited liability partnerships
  • Scottish limited partnerships

So as a legal, accounting, financial services or formation agent – how does this affect you?

Well, Companies House will now look at the name, address, DOB, nationality and occupation of all personnel associated with a new entity and if the details are a sufficient match for anyone on the DP register, your application will be rejected. You will have the option to resubmit your application, providing supporting evidence if you believe it to be a case of mistaken identity.  In theory then, those involved in entity formations will only notice the effect when an application is rejected and need not change their internal processes.

In practice however, pre-emptive checks provide an opportunity to manage risk. Entity formations are often part of a larger transaction involving legal, accounting or other financial services, all of which have an impact on a firm from a financial, time and resource perspective. Best practice would certainly be to install vigilance at the beginning of the process by conducting thorough KYC / AML checks and comparing identity information to that listed on the Companies House consolidated list of DPs which you can find here. Thorough, pre-emptive checking will also reduce the risk of possible reputational damage associated with appearing to give DPs an easy entry point to economic resources in the UK.

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Author: Chris Mayfield

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