An Overview: Modernising Business Registers and Director Identification Numbers
The government has been planning to modernise business registers for a few years now, but has yet to pass any legislation.
The Commonwealth Registers Bill 2019 and Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 were most recently reintroduced in December 2019, however there hasn’t been any progress since.
It is crucial that there aren’t any further delays in passing these bills. Why?
Current legislation and technology surrounding business registers are outdated. This creates an inefficient system which enables financial misconduct to slip through the cracks.
This puts businesses, employees, public revenue, the integrity of the corporate system and the overall Australian economy at risk.
This article introduces the Modernising Business Registers (MBR) program which will combine all the registers into a single platform and introduce Director Identification Numbers (DINs).
It then discusses the limitations of current legislation and explains how the MBR and DINs regime will significantly benefit all users of the registry and serve as an important tool to curb fraudulent and phoenix activity.
Modernising Business Registers
Business registers are a key part of Australia’s economic infrastructure. They provide legitimacy and protection to businesses and support regulators in undertaking compliance activities. Currently, there are 34 legal registers being administered by the Australian Business Register (ABR) and Australian Securities and Investments Commission (ASIC).
They include the Business Names register, ACN Register, Credit Register, Register of Disqualified Company Directors and Other Officers and more. This data is hosted in different systems across various government departments and agencies.
The plan to modernise business registers began in 2016 with the National Business Simplification Initiative (NBSI). The NBSI aimed to support economic growth, employment and innovation by simplifying government interactions and reducing regulatory burdens imposed on businesses.
In the 2018-19 Budget, the government announced it would modernise all the business registers from the ABR and ASIC, by uniting them onto a single contemporary platform that will be administered by the Australian Business Register within the ATO.
This integrated register will create a whole-of-government platform containing higher quality data on businesses.
On 13 February 2019, the Commonwealth Registers Bill 2019 was introduced, making amendments to existing laws to create a new Commonwealth business registry regime. At the same time, the Modernising Business Registers (MBR) program was introduced under the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019.
This focuses on creating a more efficient registry service by providing a centralised point for government interactions. However, these bills lapsed on 11 April 2019 prior to the federal election. They were reintroduced on 4 December 2019, but legislation still has not been passed.
Director Identification Numbers (DINs)
The MBR program also provides a legal framework to introduce Director Identification Numbers (DINs), a permanent unique identifier for an individual which will never expire even if they terminate their directorship with a company. Every director will have a DIN which will be linked to the business register.
DINs were first proposed in September 2015 by the Productivity Commission in their report on “Business Set-up, Transfer and Closure”. They were also suggested in a September 2017 report on reforms to deter and penalise illegal phoenixing.
Illegal phoenixing occurs when company directors deliberately shut down their company to escape their liabilities and transfer their assets to a new company.
Trade creditors are left unpaid, employees suddenly lose their jobs without receiving their entitlements, and public revenue is affected due to tax evasion and compliance costs. Illegal phoenixing is estimated to cost the Australian economy between $2.9 billion and $5.1 billion annually.
DINs are expected to prevent the appointment of fictitious directors and improve the traceability of their relationships with companies over time.
There will be civil and criminal penalties for non-compliance with the new DIN requirements. For example, deliberately providing false identity information to the registrar, intentionally providing a false DIN or applying for multiple DINs.
Limitations of current legislation around business registers
The current registry regime is inefficient as it is becoming outdated, in terms of both legislation and technology.
Ageing IT infrastructure
The current technology used to maintain the registers is ageing, outdated, inefficient and unable to keep up with the demands of the digital economy. Some of the register’s technology platforms are about 30 years old.
Imagine using a computer or a mobile phone from 30 years ago… you wouldn’t even be able to send a basic text message, it will constantly breakdown and also be incredibly expensive to maintain.
ASIC’s current registry systems are unable to keep up with the complexity and volume of data. It currently facilitates over 140 million searches, 3 million updates and around 900,000 enquiries annually.
There are 2.7 million registered companies and 4.4 million current director roles in ASIC’s database. Only a modern system will be able to handle increasing quantities of data and rapid technological developments.
These legacy systems are costly to maintain, difficult to improve, unstable and vulnerable to outages and service disruptions. They have limited capacity to implement reforms and meet increasing expectations of new services.
Inefficient interactions between government and businesses
By hosting data in separate systems in different agencies, ASIC has limited capabilities to interact with businesses. The current framework does not allow ASIC registry functions to be administered by another agency, making it difficult and time consuming to locate information.
As a result, businesses face high compliance costs and regulatory obligations as they are required to submit the same information to multiple registry services. This leads to unnecessary burdens for business owners, taking them away from running their own business.
Lack of transparency and identification and verification capabilities
Currently, ASIC does not verify the identity of directors; information is taken at face value. This means that directors may have multiple unlinked records within registry systems, with slight variations in name, address and personal details, enabling fictitious identities to enter the system.
ASIC also mainly interacts with the company instead of individual directors. As a result, there is a lack of transparency in the relationships between directors and multiple companies.
Poor data quality and integrity
When registry accountabilities are distributed across different agencies, there is no coordination and rationalisation of data collection and authentication. Regulators use different methods and rules when managing registries.
Some might be unable to fully utilise technology or flexibly deal with defective applications. Registers are also not updated regularly as some regulators might not have determined the information required for each register.
As a result, data in the registers is often outdated, inconsistent, incomplete or defective. Furthermore, having separate registers also compromises the security of sensitive data. Consequently, the government is unable to maximise the use of registry data.
Insufficient protection against financial misconduct
In an October 2017 report, the Black Economy Taskforce recommended the creation of a single business register maintained by a single agency, noting:
“The fragmentation of business registers has created opportunity for unscrupulous businesses to either register multiple entities to avoid obligations or for those who have been involved in multiple phoenixing entities, for example, to start afresh with a new business untainted by the tarnished reputation of their earlier entities.”
Benefits of Modernising Business Registers and DINs
The new legislation will create an integrated modern business register system, reducing the long-term costs of registry fragmentation.
Flexibility and adaptability to improve user experience
Under the new regime, data will be subject to uniform rules that are flexible, technology neutral and governance neutral. The registrar will be given the flexibility to adapt and respond to technological changes to improve the user experience.
Efficient interactions and more productivity
Directors and companies will be able to interact with the registrar in a streamlined and efficient manner. Redundant reporting obligations will be eliminated, reducing frustrations and saving time.
In the event of an insolvency, DINs will make it easy to track a director’s corporate history, thus reducing time and costs involved for administrators and liquidators.
These transformed interactions will increase productivity and service output, boosting the economy in turn.
DINs enable traceability of a director’s profile and activities. Used across government agencies and databases, regulators will be able to map relationships between individuals and entities. It will improve tracking of directors and their failed companies.
This increases transparency and will deter the use of fictitious identities and phoenix entities. This also elevates the utility and reliability of business registry services.
Improve enforcement action around financial misconduct
Regulators, businesses and individuals will get a better understanding of the identities and affiliations of directors. By monitoring director registration and appointments over time, it will become easier to detect disqualified or fraudulent directors.
The register will also have more flexibility to respond to policies related to the black economy. Therefore, the MBR program and DINs are key instruments in detecting, deterring and disrupting phoenix activity.
Improve data quality and security
Storing director and company data together increases the accuracy and currency of the data. Meanwhile, using DINs to identify and verify directors increases data security.
Data with high integrity will be able to provide new insights, increasing its economic and social value. It will then be possible to maximise its potential and foster data-driven innovation.
The new business registry regime will not only increase confidence in the business register, but also build trust in the Australian government’s digital and data transformation initiatives.
Modernising business registers will improve interactions between businesses and the government, making it easier to run businesses in Australia.
More importantly, the government needs to pass these legislations as soon as possible to curb corporate and financial fraud and keep up with the increasing demands of the digital economy.
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