The government is consulting until 21 February 2020 on draft legislation making amendments to the 2017 money laundering regulations, to transpose the fifth money laundering directive (5MLD) in relation to trust registration. The consultation document looks in particular at the types of trust that will be out of scope of registration, the process for ‘legitimate interest’ requests for beneficial ownership information and the proposed penalty regime.
HM Treasury consulted between April and June 2019 on the main due diligence aspects of the EU fifth money laundering directive, resulting in the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, SI 2019/1511, which came into force on 10 January 2020. These regulations do not include requirements relating to trust registration, which is the subject of the current consultation and draft legislation.
A number of respondents to the earlier HM Treasury consultation had difficulty with the requirement under the directive for offshore trusts to register solely because of a business relationship with a relevant entity in the UK. The new consultation proposes to define a ‘business relationship’ as one involving ‘an element of duration’ between the relevant person and the trust. The government does not intend to specify a period of time in legislation, but would expect this to mean a relationship lasting more than 12 months.
The government proposes that the following types of trust will be out of scope:
statutory trusts;
trusts created by two or more people co-owning an asset such as a bank account;
maintenance fund trusts for historic buildings;
approved share option and profit-sharing schemes;
vulnerable beneficiary trusts;
personal injury trusts;
registered pension schemes held in trust;
charitable trusts; and
trusts already registered in another EU member state (subject to rules on ‘business relationship’).
HMRC’s trust registration service will be ready for newly-required trusts to register in 2021. The following deadlines are proposed:
trusts in existence at 10 March 2020 must register by 10 March 2022;
trusts set up after 10 March 2020 must register by 10 March 2022, or if later, within 30 days;
trusts set up on or after 10 March 2022 will have 30 days to register; and
once registered, trustees will have 30 days to update the system with details of any changes.
The proposed penalty regime will involve:
for a first offence of failure to register, no financial penalty, but a notification (nudge) letter;
for a first offence of failure to update details within the time limit, no financial penalty, but a notification letter; and
a set penalty of £100 for each subsequent failure to update details within the time limit.
Deliberate failures may be subject to a financial penalty in the first instance rather than a notification. There will be an appeals process allowing trustees to argue reasonable excuse.
As the directive does not define ‘legitimate interest’ the government proposes to use the definition set out in the draft legislation. Applicants asserting a legitimate interest will be required to provide certain standardised information in support of their application.
Third parties may also request access to beneficial ownership information on the trust registration service where trusts hold a controlling interest in non-EEA (third country) legal entities. The government proposes to treat a ‘controlling interest’ as one where a person holds, directly or indirectly, more than 50% of the shares or voting rights in the corporate or other legal entity.
Even where applicants can demonstrate a legitimate interest, or the third-country entity definitions are met, the government intends to follow the directive in preventing access to information from the register where there would be a disproportionate risk to the beneficial owner:
owing to the risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation; or
because they are a minor or otherwise legally incapable.
The government is consulting until 21 February 2020 on draft legislation making amendments to the 2017 money laundering regulations, to transpose the fifth money laundering directive (5MLD) in relation to trust registration. The consultation document looks in particular at the types of trust that will be out of scope of registration, the process for ‘legitimate interest’ requests for beneficial ownership information and the proposed penalty regime.
HM Treasury consulted between April and June 2019 on the main due diligence aspects of the EU fifth money laundering directive, resulting in the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, SI 2019/1511, which came into force on 10 January 2020. These regulations do not include requirements relating to trust registration, which is the subject of the current consultation and draft legislation.
A number of respondents to the earlier HM Treasury consultation had difficulty with the requirement under the directive for offshore trusts to register solely because of a business relationship with a relevant entity in the UK. The new consultation proposes to define a ‘business relationship’ as one involving ‘an element of duration’ between the relevant person and the trust. The government does not intend to specify a period of time in legislation, but would expect this to mean a relationship lasting more than 12 months.
The government proposes that the following types of trust will be out of scope:
statutory trusts;
trusts created by two or more people co-owning an asset such as a bank account;
maintenance fund trusts for historic buildings;
approved share option and profit-sharing schemes;
vulnerable beneficiary trusts;
personal injury trusts;
registered pension schemes held in trust;
charitable trusts; and
trusts already registered in another EU member state (subject to rules on ‘business relationship’).
HMRC’s trust registration service will be ready for newly-required trusts to register in 2021. The following deadlines are proposed:
trusts in existence at 10 March 2020 must register by 10 March 2022;
trusts set up after 10 March 2020 must register by 10 March 2022, or if later, within 30 days;
trusts set up on or after 10 March 2022 will have 30 days to register; and
once registered, trustees will have 30 days to update the system with details of any changes.
The proposed penalty regime will involve:
for a first offence of failure to register, no financial penalty, but a notification (nudge) letter;
for a first offence of failure to update details within the time limit, no financial penalty, but a notification letter; and
a set penalty of £100 for each subsequent failure to update details within the time limit.
Deliberate failures may be subject to a financial penalty in the first instance rather than a notification. There will be an appeals process allowing trustees to argue reasonable excuse.
As the directive does not define ‘legitimate interest’ the government proposes to use the definition set out in the draft legislation. Applicants asserting a legitimate interest will be required to provide certain standardised information in support of their application.
Third parties may also request access to beneficial ownership information on the trust registration service where trusts hold a controlling interest in non-EEA (third country) legal entities. The government proposes to treat a ‘controlling interest’ as one where a person holds, directly or indirectly, more than 50% of the shares or voting rights in the corporate or other legal entity.
Even where applicants can demonstrate a legitimate interest, or the third-country entity definitions are met, the government intends to follow the directive in preventing access to information from the register where there would be a disproportionate risk to the beneficial owner:
owing to the risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation; or
because they are a minor or otherwise legally incapable.
