Directors shrouded in ambiguity ahead of ECCTA legislation – Law Debenture
The vast majority of UK directors believe they understand the ECCTA legislation – but the reality reveals an abundance of confusion.
According to new research from Law Debenture, half (50%) of UK directors say they fully understand the new Economic Corporate Crime and Transparency Act (ECCTA) regulations, and a further 39% claim to ‘mostly’ understand. Only 9% admit to having limited understanding, and 3% no understanding – while 2% of directors have never heard of the regulation at all.
However, Law Debenture’s research shows that directors may not be as attuned to the ECCTA legislation as they think, revealing a chasm between belief and reality. Despite what appears to be widespread understanding, Law Debenture included statements as part of the research which were a mixture of true and false – and a significant number of directors believed some of the false statements to be true, highlighting confusion over what the regulation covers.
The regulation covers:
- ID verification
- Companies House reforms
- Strengthened anti-money laundering powers
- Heightened importance of whistleblowing
- Enhanced powers to seize and recover suspected criminal cryptocurrency assets
- New regulatory objectives within the Legal Services Act to combat economic crime
- Implementation of measures to address strategic lawsuits against public participations (SLAPPs) related economic crime
- The establishment of a ‘failure to prevent fraud’ offense
However, nearly a third (32%) of directors wrongly believe that stronger accounting standards will be introduced as part of the new legislation, and 30% believe there to be a yearly audit against the ECCTA principles. As well as this, a quarter (25%) incorrectly think that there’ll be monthly compliance checks, followed by 21% who thought the regulations introduce compulsory ethnicity and disability pay gap reporting. 18% of directors also wrongly thought it required a shift to compulsory in-person AGMs.
The same confusion applies when it comes to penalties for failing to comply with ECCTA. Two in five (40%) of directors thought the firing of non-compliant directors is a penalty for failing to comply, followed by a third (32%) who thought it could also lead to the firing of non-compliant boards. 30% incorrectly believe fines against businesses would be limited, while over a quarter (26%) wrongly think personal fines are also limited. In reality, penalties include:
- Unlimited fines against the business
- Unlimited personal fines
- Criminal charges
Chelsea Chivers, head of UK Entity Management Services at Law Debenture, commented: “Time is running out to comply with the new ECCTA regulations, and our research makes it clear that significant knowledge gaps are hampering preparedness.
“The number of directors who are unclear on ECCTA policies, as well as the potential repercussions, will spark concern as the deadline looms. The fact that many are still unclear on the penalties – which in most cases are more severe than directors think – shows that there has likely been widespread inertia when it comes to ensuring businesses are ready.
“Make no mistake – the ECCTA legislation marks a seminal moment in business regulations, and the impact of failing to comply cannot be understated. It can, however, be a very tricky landscape for many firms to navigate, especially smaller businesses or those that are not used to larger governance workloads. That’s where many businesses could take advantage of professional services support. Outsourcing and taking advice on the process will ensure firms are one step ahead, while freeing up directors to do what they should be doing – running the business and going for growth.”