Paul Brehony and Kate Gee discuss the new Economic Crime Bill in Insurance Day

By Paul Brehony & Kate Gee

Partner Paul Brehony and Counsel Kate Gee examine the provisions of the new Economic Crime Bill and discuss its implications for the insurance sector in Insurance Day.

Paul and Kate’s article was published in Insurance Day, 9 November 2022, and can be found here

When the Home Office decided to send a tweet in May about the new Economic Crime and Corporate Transparency Bill (“the Bill”), the words chosen were carefully chosen to attract headlines: “Driving out dirty money from the UK. Strengthening the UK’s reputation for supporting legitimate business to thrive.” Not to be outdone, The Department for Business, Energy and Industrial Strategy followed up soon afterwards by claiming that the Bill would allow the government to “crack down on kleptocrats, criminals and terrorists who abuse our open economy”.

Behind the tabloid friendly language, there was a serious intent to change both procedure and perception: the Bill forms part of the Government’s efforts to protect the UK’s financial system from criminal exploitation amid fears that the City has earned an undeserved global reputation as an international money-laundering hub.

The Bill follows the Economic Crime (Transparency and Enforcement) Act 2022 (“ECA”), which was enacted in March: responding to Russia’s invasion of Ukraine, it took only a fortnight from first reading to royal assent.

The ECA created a Register of Overseas Entities, requiring overseas entities to identify and register their beneficial owners; expanded the scope of application of Unexplained Wealth Orders (UWOs) by creating an alternative test for granting them; and created government powers to impose sanctions more quickly.

So, what measures might affect the insurance sector?

The proposed legislation focuses on three key areas: economic crime and corporate transparency; companies, limited partnerships and other kinds of corporate entities; and the registration of overseas entities; and does not, on an initial read, directly target the business of insurance. However, it will inevitably impact the insurance industry and those who work in the sector.

The Bill’s official stated aim, according to the UK government website, is to prevent abuse of the economy and support enterprise by reforming Companies House and limited partnerships (LPs), and to strengthen the broader response to economic crime through new intelligence-gathering powers.

It follows that the new Bill’s provisions would impact insurance companies as operating businesses that have directors. This is in addition to the regulatory oversight that general insurers and insurance intermediaries already receive from the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) and specific regulation provided by the Solvency II rules after they were introduced in 2016 to harmonise insurance regulation across the EU. Reforming Solvency II is another key government objective announced earlier this year.

Companies House – enhanced powers

Under the terms of the draft Bill, Companies House is to receive enhanced powers, intended to improve the reliability and accuracy of information held at Companies House, and the transparency around companies’ ownership and operation. They are backed by reforms to how Companies House systems operate: they will be modernised and digitised.

The Bill will empower Companies House to verify the identity of all new and existing registered company directors, people with significant control and anyone delivering information. It will be able to “check, challenge, and decline” false or fraudulent information submitted to, or already appearing, in the register. Companies will also be required to have their registered office at a place where they can acknowledge and receive documents, and all companies will be required to file profit and loss accounts. These proposals affects the 500 or so insurance companies currently supervised by the Bank of England just as much as any other business.

As providers of a public register of businesses, their accounts, and their directors, the Bill would give Companies House new powers to investigate false information when new companies are established. For the insurance sector, these provisions will invariably add to the compliance burden of both company directors and their companies, as well as requiring transparency when verifying companies as LPs or overseas entities.

Companies House will also receive enhanced investigative and enforcement powers, enabling it to cross-check and share data with public and private entities, and to report any suspicious activity to the security and law enforcement agencies. Through the augmented powers that are proposed, the Companies House Registrar will become a more active gatekeeper over company creation.

Anti-money laundering powers

Insurers will also need to be aware of the new measures and consider how they affect their Anti-Money Laundering (AML) procedures and the type of disclosure that is required at Companies House. The Bill’s new AML measures will amend the criminal confiscation powers and civil recovery powers of the Proceeds of Crime Act 2002, expand the Serious Fraud Office’s pre-investigation powers, and introduce new powers to seize and recover cryptoassets.

For the purpose of combatting economic crime, the Bill will allow businesses (where appropriate) to share information directly with each other, overriding civil liability for breaches of confidentiality. For the same purpose, it will remove the need for a Suspicious Activity Report to be submitted before the NCA’s Financial Intelligence Unit can obtain information from businesses.

What practical impact is the Bill anticipated to have on insurers?

There is little doubt that the new Companies House policies will improve transparency and limit businesses’ privacy and confidentiality rights. Insurers will therefore need to review their information that is held in Companies House; update due diligence processes to guarantee compliance in Companies House filings; and consider their economic crime information-sharing processes, for example.  In addition, insurers are likely to make and receive requests for information in relation to relevant clients and activity. Accordingly, insurers should implement appropriate procedures for identifying, assessing, and monitoring clients who trigger the relevant requirements.

Notably, the Bill will make verifying beneficial owners a legal obligation for insurers. This will bring a corresponding increase in risk arising out of such an obligation. If mistakes or delays occur that adversely affect clients (for example, refusal, delay or failure to comply with verification requirements), insurers may face claims from clients, including in negligence.

Even before it becomes law, questions have arisen about how such arrangements will be funded. During the first parliamentary debate over the Bill in October, MPs highlighted the absence of new funding proposals for law enforcement agencies. Given the deep cuts that are anticipated by the Sunak-led government, underfunding might hinder the oversight of the Bill in practice. The publication of more detailed tax and spending plans, scheduled later this month, may determine how this problem can be resolved.

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