How to Stay ECCTA Compliant with Background Checks and ID Verification
The world may seem to be drowning in acronyms if you work in compliance, HR, or recruitment. BS7858, FCA, SMCR, and now, say hello to the ECCTA.
The Economic Crime and Corporate Transparency Act, or ECCTA for short, is the most recent piece of UK legislation designed to increase transparency, combat fraud, and hold businesses and their executives accountable.
And here's the thing: this Act impacts you if you're in charge of hiring, onboarding, or any other kind of due diligence.
The Importance of the ECCTA
Let's get started with some context. Fraud is the most common crime in the UK, accounting for a staggering 40% of all crimes in England and Wales, even though the headlines are filled with stories about cybercrime and spectacular corporate failures.
Reports indicate that fraud costs UK businesses approximately £157.8 billion annually, with the total economic impact rising to £219 billion when individual and public losses are taken into account. Yikes.
Furthermore, fraud isn't always external. It can occasionally be committed by the very people you trust, such as senior executives, contractors, or employees. Consider the 2018 Patisserie Valerie collapse, which resulted from an internal £94 million fraud.
The lesson? It could have been avoided with better oversight and more robust background checks. The ECCTA is working to address that very issue by encouraging companies to take economic crime seriously, particularly regarding risk management and hiring practices.
ECCTA Overview: Essential Information
At its core, the Economic Crime and Corporate Transparency Act has two main objectives, which are as follows:
- Improving the transparency of corporations.
- Making businesses more accountable for economic crimes.
Let's break that down to see what it means for you.
1. Mandatory Identity Checks for Directors and Key Owners
Verifying the identity of directors or owners was not required by law prior to the ECCTA. Bad actors found it simple to conceal themselves behind fictitious names or shell corporations because of this gap.
Right now? It's required by law.
- Existing company directors and owners have a transition period to get verified.
- New directors must confirm their identity with Companies House before the appointment.
- New Persons of Significant Control (major owners) must do so within 14 days.
You must perform identity verification (ID check) for board-level hiring or executive recruitment. If not performed diligently, appointments might be denied or, worse, result in criminal charges.
It should be handled with the same urgency as a Right to Work check because it is equally important.
2. It's Now Illegal to "Fail to Prevent Fraud"
It's the big one. Failure to prevent fraud is a new offence that will take effect on September 1, 2025.
Simply put:
Your business may face legal action if any of your employees commit fraud that benefits the company, and you did not have adequate procedures in place to prevent such fraud.
Even if you were unaware of it.
The only way to protect your company? Show that you implemented "reasonable procedures" to safeguard against fraud. Spoiler alert: that includes extensive background checks in the UK.
3. Senior Managers' Expanded Corporate Liability
Liability is also extended beyond board members by the ECCTA. The business itself may now be held criminally accountable if a senior manager, such as a CFO or department head, engages in economic crimes like fraud or money laundering.
This implies that hiring decisions are crucial, particularly for senior positions. A poor hire could have major legal repercussions for your company.
What Employers Need to Do Right Now
Now you might be wondering, what’s the next practical step, then? How can you maintain compliance while preparing your hiring procedures?
This is where pre-employment screening, identity verification, and background checks come into play.
1. Conduct Complete Background Checks for High-Risk Roles
Your checks must be strict, particularly for positions involving money, decision-making authority, or access to private information.
This comprises:- Employment history and qualification verification
- Criminal record checks
- Adverse credit checks
- Thorough reference checks
These high-risk screening procedures assist in identifying warning signs before they develop into major scandals. Ignoring them is not only risky under the ECCTA, but it may also be considered negligent.
2. Monitor More Than Just Employees
Many businesses overlook the fact that the ECCTA also applies to associated persons, including contractors, agents, subsidiaries, and employees.
You might be held accountable if one of them commits fraud and you fail to exercise due diligence.
Therefore, pre-employment screening is not enough. Go above and beyond:
- Regularly re-screen current employees in high-risk positions.
- Maintain up-to-date records of authorised contractors.
- Conduct background checks on vendors.
- Add anti-fraud provisions to supplier agreements.
There are no blind spots with this type of thorough background check method
3. Onboard New Directors with Extra Care
The ECCTA mandates that the identity of any new directors or beneficial owners be promptly and accurately verified.
You can use digital identity verification frameworks approved by the government, but you must act within the legal timeframe to avoid penalties and delays.
But don't stop there. Ensure that your leadership is aware of the following:
- How your company is complying with the ECCTA.
- What their new responsibilities are.
- What resources are available in case they have any concerns.
4. Build an Anti-Fraud Culture
The majority of people still view compliance as a tick-box activity. However, that way of thinking is no longer sufficient.
A proactive culture of fraud prevention is required by the ECCTA. And employers should be well-positioned to spearhead that change.
Here's how:- Introduce all employees to fraud awareness training.
- Educate people on the signs of fraud and how to recognise it.
- Establish a system for confidential whistleblowing.
- When something seems strange, encourage others to voice their concerns.
Education, not punishment, is the first step in prevention. And that's how you develop trust from the inside out.
ECCTA is Urgent and Not Optional
The Economic Crime and Corporate Transparency Act will remain in effect. It represents a significant change in the way the UK addresses corporate fraud, not just another piece of legislation.
This entails being more astute, prompt, and comprehensive in your background checks, ID verification procedures, and hiring procedures.
Because your company's future or reputation could be at stake if you miss a step under the ECCTA.
Complygate provides comprehensive, accurate, and secure pre-employment screening, identity checks, and industry-specific high-risk background checks to assist you in meeting ECCTA requirements.
Do you need assistance getting ready for the ECCTA? Get in touch with us right now to avoid missing the deadline.
