The UK is one of the quickest and cheapest places to incorporate a company, offering same-day registration services, facilitating off-the-shelf companies and imposing no minimum capital requirements. That is generally regarded as an important factor in its attractiveness as a place to set up and run a business – see, for example, the 2019 World Bank Doing Business Survey, which awards the UK ninth place overall. (New Zealand, Singapore and Denmark top the table, with the United States in eighth place.)

But being able to set up a company quickly and cheaply is clearly only one factor in a country’s attractiveness to entrepreneurs, and the UK seems likely to face some challenges with some of the other criteria in the near future. In that context, it does not seem like a good time to add regulatory barriers to the incorporation and corporate reporting processes for small and medium-sized companies – and the UK government’s consultation on “Corporate Transparency” appears to be poorly timed. Issued in May, and with a return date of 5 August, the government’s proposals – heralded as the most significant reform of the UK’s company registration framework since 1844 – would add some important delays and administrative burdens.

On the other hand, these changes would have quite a long lead-time, and the UK government is rightly concerned about the growing problem of economic crime. If the UK’s business-friendly policies are being exploited by criminals, they do need to be looked at again, and initiatives to fight money laundering and terrorist financing must take centre stage.

The trick, of course, is to strike the right balance. Policy-makers need to make sure that the burden of new measures falls in the right place. Well-targeted and proportionate interventions, using new and emerging technologies and safeguarding data security and individual rights to privacy, will be welcomed by market participants. Demands for additional information that go beyond what is necessary, or put obstacles in the way of normal business activities, will be regarded with scepticism.

The UK government is aware of the need for caution, but some of its proposals will still concern many legitimate businesses – without, at least in some respects, being likely to deter a determined criminal. For example, the far-reaching consultation document proposes pre-verification of the identity of directors before they are appointed and registered with Companies House (the UK’s central registry). Any such process needs to be carefully designed, and verification checks have to be fast and accurate; otherwise, there could be delays in incorporating companies and appointing new directors, and confusion about who has been properly appointed to a company’s board.

Similar proposals that would require verification of the identities of those who ultimately control a UK company, or exceed certain shareholding thresholds, also raise concerns. Such a process is familiar and reasonable for regulated businesses – where individuals and ultimate controllers are subject to “fit and proper” approvals – but it would be disproportionate for others. The Government has stated that the verification will only be required after the interest in the company has been acquired and that responsibility for verifying the shareholders’ identity should rest with the shareholders. However, it is difficult to see how this would work, and be effectively enforced, in practice – in particular with respect to overseas shareholders. For these reasons, the government seems to favour a voluntary system, with unverified shareholders flagged as such on the register. But it is not clear what benefits such a voluntary regime would deliver, and it could give rise to unwarranted negative inferences if companies have unverified individuals on their register.

Policing these new rules will also be costly and difficult, but is essential if they are to have any effect. There is, of course, no point in establishing rules that criminals can ignore with impunity but which law-abiding businesses have to spend money to comply with. Much of this burden will fall on Companies House, and the government is proposing to give it new powers. But the picture is less clear as regards funding: the consultation notes that the reforms “are wide ranging and represent a significant shift to Companies House’s current operating model and approach” requiring “significant up-front investment” . Whether and when government funding for this investment will be made available is not yet clear.

And, even if they are properly funded, implementing these new procedures, and the many other changes suggested in the consultation, will be a major undertaking, and public-sector IT projects do not have a reputation for smooth execution.

For these reasons, imminent changes seem unlikely. Nevertheless, the venture capital and private equity sector – which has a strong interest in supporting initiatives to tackle fraud, but is also an important user of Companies House services – will need to ensure that the government hears its significant concerns as the proposals are developed. Perhaps more modest proposals that could be introduced more quickly would be preferable, with a longer-term plan to be more ambitious if the initial roll-out is successful.