The fifth Money Laundering Directive (5MLD) was implemented into UK law via the Money Laundering and Terrorist Financing (Amendment) Regulations, SI 2019/1511, (‘the regulations’) on 10 January 2020. It represents the latest effort by the EU to tackle terrorist financing and money laundering and meet the Financial Action Task Force’s global standards. Following the implementation of the fourth Money Laundering Directive (4MLD) on 26 June 2017 firms should have already undertaken an extensive review of their systems and controls and the regulations simply enhance the regulatory framework created by 4MLD.
There are a number of key requirements contained within the regulations, and UK-based obliged entities, including both direct and indirect tax advisers, are advised to review the new legislation in order to ensure compliance. For example, the regulations require firms to apply customer due diligence measures to existing customers on a risk-sensitive basis or when circumstances relevant to a customer’s risk assessment have changed. Specific high-risk sectors, including oil, arms, precious metals, tobacco products and cultural artefacts, where enhanced due diligence will be required, are now explicitly identified. In addition, from implementation day, all obliged entities must tell Companies House if there’s a discrepancy between the information that they hold about a beneficial owner of a client and information on the Companies House people with significant control register.
The regulations expand data sharing requirements, such that data on certain trusts will be shared with obliged entities that enter into a business relationship with that trust. Data will also be shared with persons who are able to demonstrate a ‘legitimate interest’ in accessing information on the beneficial ownership of a specified trust.
4MLD prompted HMRC to introduce the trust registration service (TRS), which requires all express trusts with tax liabilities to register with HMRC. Under the regulations, however, HMRC will require all express trusts, not just those with UK tax liabilities, to register with the TRS. HMRC has indicated that it intends to run a detailed technical consultation in early 2020 regarding the details of the implementation of the requirements of 5MLD as regards the TRS.
It is, however, possible that upon implementation, there will be no minimum thresholds for registration with the TRS, which means that all trusts will be required to register. It will also apply to non-EU resident trusts which own UK land or which have a business relationship with a UK entity. It should be noted that the new obligations will apply only to ‘express trusts’, which are deliberately created by a settlor, and it appears that it will be for the trustees to determine whether their trust is an express trust. That said, the government has provided examples of express trusts which are likely to have to register with the TRS, including discretionary trusts, charitable trusts and employee ownership trusts.
The deadline for unregistered trusts to register with the TRS has been suggested as 31 March 2021. For new trusts created on or after 1 April 2020, a 30 day registration period has been proposed. Firms should work closely with their clients in order to identify whether any trusts with which they are involved will have to register with the TRS and, if they consider it beneficial, respond to HMRC’s technical consultation in due course.
While the requirements of 5MLD represent an interactive change in the UK’s anti-money laundering regulatory environment, firms are advised to consider the impact of the regulations on money laundering risk assessments and client onboarding processes in order to minimise any potential for breach. With HMRC investigating and fining numerous firms for breaches of anti-money laundering rules, it has never been more important to ensure compliance with the law.
The fifth Money Laundering Directive (5MLD) was implemented into UK law via the Money Laundering and Terrorist Financing (Amendment) Regulations, SI 2019/1511, (‘the regulations’) on 10 January 2020. It represents the latest effort by the EU to tackle terrorist financing and money laundering and meet the Financial Action Task Force’s global standards. Following the implementation of the fourth Money Laundering Directive (4MLD) on 26 June 2017 firms should have already undertaken an extensive review of their systems and controls and the regulations simply enhance the regulatory framework created by 4MLD.
There are a number of key requirements contained within the regulations, and UK-based obliged entities, including both direct and indirect tax advisers, are advised to review the new legislation in order to ensure compliance. For example, the regulations require firms to apply customer due diligence measures to existing customers on a risk-sensitive basis or when circumstances relevant to a customer’s risk assessment have changed. Specific high-risk sectors, including oil, arms, precious metals, tobacco products and cultural artefacts, where enhanced due diligence will be required, are now explicitly identified. In addition, from implementation day, all obliged entities must tell Companies House if there’s a discrepancy between the information that they hold about a beneficial owner of a client and information on the Companies House people with significant control register.
The regulations expand data sharing requirements, such that data on certain trusts will be shared with obliged entities that enter into a business relationship with that trust. Data will also be shared with persons who are able to demonstrate a ‘legitimate interest’ in accessing information on the beneficial ownership of a specified trust.
4MLD prompted HMRC to introduce the trust registration service (TRS), which requires all express trusts with tax liabilities to register with HMRC. Under the regulations, however, HMRC will require all express trusts, not just those with UK tax liabilities, to register with the TRS. HMRC has indicated that it intends to run a detailed technical consultation in early 2020 regarding the details of the implementation of the requirements of 5MLD as regards the TRS.
It is, however, possible that upon implementation, there will be no minimum thresholds for registration with the TRS, which means that all trusts will be required to register. It will also apply to non-EU resident trusts which own UK land or which have a business relationship with a UK entity. It should be noted that the new obligations will apply only to ‘express trusts’, which are deliberately created by a settlor, and it appears that it will be for the trustees to determine whether their trust is an express trust. That said, the government has provided examples of express trusts which are likely to have to register with the TRS, including discretionary trusts, charitable trusts and employee ownership trusts.
The deadline for unregistered trusts to register with the TRS has been suggested as 31 March 2021. For new trusts created on or after 1 April 2020, a 30 day registration period has been proposed. Firms should work closely with their clients in order to identify whether any trusts with which they are involved will have to register with the TRS and, if they consider it beneficial, respond to HMRC’s technical consultation in due course.
While the requirements of 5MLD represent an interactive change in the UK’s anti-money laundering regulatory environment, firms are advised to consider the impact of the regulations on money laundering risk assessments and client onboarding processes in order to minimise any potential for breach. With HMRC investigating and fining numerous firms for breaches of anti-money laundering rules, it has never been more important to ensure compliance with the law.
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