The service is run on the principle of good faith, registering new firms without investigation, provided the forms are complete and ‘properly delivered’.
This, however, has left the register open to fraudulent and misleading filings, leaving consumers in danger of falling victim to scams.
Here, we explain why you shouldn't take Companies House listings at face value, and outline how the government plans to clean up the register.
Outsmart the scammersA cascade of financial crime
Fraud on Companies House is a significant problem, and the consequences for consumers can be serious.
Last year, 10,000 people applied to have their address removed from the Companies House register, after discovering it was being used without their consent.
A single fraudulent company registration can create a cascade of financial crime. For example, it can be used to trick individuals out of cash because they wrongly assume that any company on the register is legitimate. It can also be used to obtain loans and overdrafts from banks, and even government grants.
The House of Lords is currently debating the Economic Crime and Corporate Transparency Bill, which is designed to bring in new identity checks for potential company directors and grant investigative powers to Companies House.
But with untold amounts of fraudulent and inaccurate information already on the register, removing it all will be a huge task.
Identity theft cases soar
Between April 2021 and April 2022, Companies House received 2,432 applications for removal by directors who have ‘not consented to act’ – up 59% in just three years.
Even more common is the use of unconnected addresses – often ordinary homes – as a company’s registered address. There were a staggering 10,387 applications in 2021-22 to change a company’s ‘disputed registered office address’. This number has tripled in three years.
Putting down incorrect names and addresses means police and debt collectors have nowhere to go when the alarm is raised.
Misplaced trust
Go to the Companies House website and you will see a small disclaimer near the top: ‘Companies House does not verify the accuracy of the information filed’.
However, when we surveyed more than 1,400 Which? members, we found that many had no idea the information was unverified and potentially untrustworthy. For example, 29% of members mistakenly thought Companies House checked directors’ ID documents.
Just over half of those respondents have used Companies House to do due diligence on a company at some point in their life, meaning the potential harm from fraudulent and inaccurate filings is huge.
Compulsory ID checks
When it receives royal assent later this year, the Economic Crime and Corporate Transparency Bill will introduce compulsory identity verification checks for every new company officer before a company can be formed. In addition, Companies House will be able to query filed information it believes is ‘suspicious, misleading or fraudulent’.
When it comes to the backlog of fraudulent and misleading information already on the register, the plan is that identity checks will be imposed on longstanding companies in due course.
Directors and officers who fail to verify themselves are expected to face an escalating series of measures. Possible penalties range from an ‘unverified’ status displayed next to their name on the register, all the way up to unlimited fines and criminal proceedings.
It may take years for existing companies to be checked in the same way as new ones, so users will need to continue to exercise caution when the new rules come into force.
Be on your guard against fraud
For now, any information found on Companies House should be taken with a pinch of salt – especially if you’re trying to perform due diligence on a firm or individual yourself.
You should never assume that a company or person is legitimate purely on the strength of a presence on the register. The usual warnings and red flags still apply.
For example, a director with a history of registering and disbanding lots of companies in quick succession, without filing accounts, should raise eyebrows.
Company addresses can be checked on Google Maps for plausibility – you perhaps wouldn’t expect a top investment company to lurk within an industrial warehouse or a nondescript residential home. But even something that appears to be genuine doesn’t guarantee legitimacy.
A version of this article originally appeared in the April 2023 edition of Which? Money magazine.source https://www.which.co.uk/news/article/getting-companies-house-in-order-the-rise-of-fraud-on-the-uks-company-register-aAWfV5U6IpnD