Company law and authorised signatories are an issue
Cygnetise applies blockchain technology to revolutionise the process of Authorised Signatory Management (ASM). The Cygnetise solution solves the pain of ASM by enabling operations and finance departments to digitally manage and share authorised signatories in real time, reducing risk, cutting costs, and making the process more efficient, transparent, and secure.
The world has moved on and sections of the Companies Act relating to authorised signatories require updating. New technologies combined with looking to the past could provide the answer.
A lot has changed since the Companies Act 2006 was signed into law. From Covid to climate change, technology to financial transactions, the ways in which we conduct business, the landscapes within which businesses operate, and the tools and solutions available to companies have evolved considerably.
At the same time, the Act has remained static in an advancing world and certain elements that were suited to the time it was enacted could bring great benefits if reviewed and refreshed. The issue of authorised signatory management has come to the fore recently, with high-profile cases highlighting that the current authorised-signatory element of managing contract execution is problematic.
The past – and the present
In 2005, the Company Law Reform Bill was put before parliament. It included a series of proposals on key organisational areas, including the appointment, registration, and management of Authorised Signatories. Companies would be able appoint one or more authorised signatories in addition to their directors and, in the case of a public company, its secretary.
Every company appointing one or more signatories would have to keep a register of those individuals which would be open to inspection, with failure to do so considered an offence.
In addition, companies would have a duty to keep registers valid and up to date with changes, and with updates made within fourteen days.
However, the Bill was never approved by the House of Commons and the House of Lords in its original form so never became an Act of Parliament. Instead, a section under the Companies Act 2006 defines how a Company executes agreements and contracts. A key difference between the proposals in the Bill and the Act is the absence of a legal requirement for a company to retain, maintain and manage an accurate register of authorised signatories, outside of the default directors and the company secretary.
An explanation for this may be that practicalities and costs were too onerous at the time. As companies and organisations grow, so do their numbers of authorised signatories and registers of signatories. These lists are then used as part of contract management processes and general good governance, becoming extended and complex. It’s physically impossible for directors to approve, authorise and sign everything within large organisations so it’s necessary to delegate this authority.
For smaller companies, existing legislation may increase exposure to risk and is arguably not fit for purpose in terms of governance. For example, having all directors appointed as authorised signatories by default can lead to issues. Many companies and organisations have directors or non-executive directors who may not participate in day-to-day operations yet by default have the authority to sign contracts and agreements, opening up opportunities for fraud.
The past – and the future
From a control angle, the UK Company Law Reform Bill authorised-signatory sections would have been more robust but complying with them at the time would have been administratively burdensome. Since then, technology has advanced rapidly and tools and solutions to address these issues are now available.
For example, the use of blockchain applications can replace the usual manual, paper-based, costly processes with a more efficient, transparent, and secure system. This why we elected to use blockchain for the Cygnetise solution, allowing instant and tamper-proof data changes across multiple registers, real-time sharing of these lists, and an immutable audit trail to name but a few ways blockchain improves authorised signatory management.
With the focus on and importance of good governance only growing, it’s time Company Law relating to authorised signatories was revisited and refreshed. The demand for effective ESG practices, increased accountability for directors when the new audit regulator ARGA replaces the FRC, and the prevalence of ESG-related items in FCA’s latest Regulatory Initiatives Grid, including one that seeks to strengthen the UK’s framework for audit, reporting and corporate governance of the largest companies, mean that improving governance is essential.
Add in the control issues that the pandemic and the mass shift to remote working have increased and the case for reform strengthens. The proposals relating to authorised signatories in the 2005 Company Law Reform Bill would have been effective but impractical at the time. Times have changed and the time has come to put them into practice, to significantly upgrade the governance and efficiency of companies and organisations.