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18 June 2020
The EU Fifth Anti-money Laundering Directive (5AMLD) has been enacted into UK law with effect from 10 January 2020, with the exception of proposed changes to the Trust Registration Service (TRS). These changes were delayed to permit a technical consultation on the draft legislation to take place between 24 January 2020 and 21 February 2020. The government's response to this consultation is still awaited.(1)
The TRS was first enacted in 2017, with registration requirements introduced from 2018. The TRS requires trustees to collect, maintain and keep updated details about trusts, including information about the settlor, the beneficiaries and the trust fund. Under the current rules, registration is generally required when a trust has a UK tax liability.
The proposed changes to the TRS resulting from 5AMLD would significantly increase the scope of trusts that require registration.
It is suggested that trusts entering into a business relationship in the United Kingdom or holding UK real estate will need to be registered. Particular concerns have been raised about the former, in case such a requirement deters trustees from obtaining expert advice about possible tax liabilities.
Further, all bare trusts, including those routinely used in connection with life insurance or for minor children, could be included. Where exemptions are proposed, such as for trusts for vulnerable beneficiaries, there are concerns that these will be too tightly defined. Depending on the precise details, the rules may require many low-value and low-risk family arrangements to be registered.
Approximately 200,000 trusts currently require registration. This may increase to as many as 2 million subject to the precise nature of the measures to be introduced pursuant to 5AMLD. This clearly imposes a significantly greater compliance burden on trustees.
Under the current proposals, unregistered trusts in existence on 10 March 2020 will need to be registered by 31 March 2021. The proposed deadline for new trusts is 30 days from the date on which they are settled.
Under the existing rules, access to information on the TRS is reserved for law enforcement agencies. The 5AMLD proposals provide for increased access to be extended to those with a legitimate interest in the beneficial ownership of a trust. The government proposals state that access will be given only where it furthers work to counter money laundering and terrorist financing and that applications will be rigorously reviewed on their merits. However, it is unclear how this review process will work and how an applicant's adherence to their stated aims will be monitored.
Further, where trustees have a controlling interest in a non-EU company or other entity, the draft rules do not require an applicant to demonstrate a legitimate interest in order to access information on the TRS register. While there is provision to ask applicants for information to support their request, this is not mandatory. Concerns have been raised in response to the technical consultation about this and other aspects of the proposals, and the draft legislation will hopefully be amended to take account of the issues raised.
In light of the COVID-19 crisis, requests have been made for the implementation of the new rules to be delayed due to difficulties in registering a potentially large number of trusts. A response to this request is still awaited. In the meantime, on 14 May 2020 the European Commission sent the United Kingdom (together with a number of member states) a letter of formal notice regarding its failure to fully transpose 5AMLD into UK law. The United Kingdom has four months to provide a satisfactory response to this letter, failing which it may advance to the next stage of enforcement proceedings (a reasoned opinion from the European Commission). It remains to be seen how the UK government will react to this letter. However, regardless of whether implementation of the TRS provisions is delayed further, it is anticipated that the new TRS rules will be introduced eventually, despite the United Kingdom's departure from the European Union.
The area of regulation is becoming increasingly complex and the penalties, both financial and otherwise, for non-compliance are significant. Relevant rules and regulations include the Common Reporting Standard, the TRS and the Register of Persons with Significant Control. Parties should seek guidance on the issues that must be considered, including the information that affected persons must collect, maintain and report, as well as the form that reporting should take and how to proceed when required reporting has not been done.
For further information on this topic please contact Julia Ramsden Gunduz or Robert Payne at Forsters LLP by telephone (+44 20 7863 8333) or email (firstname.lastname@example.org or email@example.com). The Forsters LLP website can be accessed at www.forsters.co.uk.
(1) For the latest article on this matter, please see "Government response to 5MLD and Trust Registration Service consultation welcomed".
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