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New Money Laundering Regulations to impact upon trustees

• Summary
• Are you a trustee who is required to register?
• Are you acting "by way of business"?
• Should I register?
• Are you a trustee who is exempt from registration?
• How do I register?
• What will happen after I have registered?
• Contacts for further assistance

 

New Money Laundering Regulations to impact upon trustees

 

Summary

• On 1 April 2008, the Money Laundering Regulations 2007 (the "Regulations") will place new obligations on certain trustees to register with HMRC.
• Trustees who are caught by the Regulations will be required to submit an application by 1 April, and any trustees who fail to do so cannot continue to act. In addition, there could be civil and criminal penalties.
• The registration requirement will only apply to trustees who are acting by way of business. However, it is currently unclear exactly what will constitute a trustee acting in this way. Clarification from HMRC on this point is expected shortly.
• Where a trustee is paid the market rate for a professional trustee, publicises the provision of its service and has set up a business for the purpose of carrying out its business, we would suggest that trustee should register. In other circumstances, you should contact us for further guidance.

Are you a trustee who is required to register?

For pension scheme trustees, only a "trust or company service provider" ("TCSP") is required to register. A TCSP includes any person who acts (or arranges for someone to act) as a trustee of an express trust, and does so by way of business in the UK. This will therefore include trustees, corporate trustees and directors of trustee companies. However, it is currently unclear from the Regulations when a person will be acting "by way of business", and therefore required to register.

Are you acting "by way of business"?

Under draft HMRC Guidance (the "Guidance") to the Regulations, it is suggested that a trustee is acting by way of business where he:

1. has set up a business for the purposes of undertaking its activities;
2. advertises or publicises the provision of these activities; or
3. carries on its activity for money or other benefit.

While it should normally be clear when a person fulfils the first two criteria, the third requirement is less clear.  The Guidance provides little clarification as to the level of remuneration or compensation a trustee can receive before they fall within the third criterion, and therefore be deemed to be acting by way of business.  It is unlikely that a trustee purely being reimbursed for expenses, where he acts as trustee of just the one scheme, will be caught.  Conversely, an individual who acts as trustee (or trustee director) of several schemes and who is able to negotiate the level of his remuneration for services, is likely to be required to register. 

Factors that may be relevant in determining whether a trustee is acting by way of business might include: what expertise a trustee uses to carry out his duties, whether a trustee also acts in that capacity for other schemes and whether a trustee is able to negotiate the reward for his services.

Even where none of these criteria are satisfied, the Guidance falls short of saying that there is no requirement to register, but rather recommends that HMRC be contacted for further clarification. 

Should I register?

Given the lack of clarity as to when registration is required and the potential consequences of failing to register, one option is to make an application to register in any event.

However, there is a downside to this approach. Trustees should be wary that, where negligence is concerned, 'business' trustees may be held to a higher standard of conduct than a lay trustee. Therefore, if a trustee registers when it is not necessary, he may be seen to be holding himself out to be a professional trustee and may forgo that greater protection afforded to lay trustees.

Where a trustee fulfils the three criteria from the Guidance (set out above), and is paid the market level rates of a professional trustee, we would suggest that registration is necessary. If a trustee is simply reimbursed for expenses and acts only for the scheme of which he is a member, our view is that he is unlikely to be required to register.  Many trustees, however, are likely to fall within these two extremes.  Given the current uncertainty and the potential downside of registering when there may be no need, we would suggest that, pending the publication of further guidance from HMRC, you should contact us for further guidance if you are unsure of whether to register.

Are you a trustee who is exempt from registration?

The Regulations list various professional bodies (such as the FSA) who already require their members to implement anti-money laundering procedures. Trustees who are members of these bodies are not required to register. 

How do I register?

Applicants will need to:

1. Complete form MLR100 (ten pages) to register the TCSP. In addition, a fee for £95 must be paid by cheque for each of the premises from which the TCSP operates its business; and
2. Complete form MLR101 (four pages) for the trustee who provides the service (or for each individual who provides the service, if it is a company). In addition, a fee for £50 must be paid by cheque for each applicant individual.

If you are required to register, HMRC must be in receipt of the required applications and fees by 1 April 2008. Following receipt, any additional information requested by HMRC must also be provided.  Changes to relevant information must be notified to HMRC within 30 days.

Even if your application is subsequently rejected, you may continue to act as a trustee until informed otherwise by HMRC. If you are intending to act as a trustee who is required to register, you must do so before acting as such. 

The necessary forms can be located at the following addresses:

1. www.hmrc.gov.uk/mlr/mlr100.pdf
2. www.hmrc.gov.uk/mlr/mlr101.pdf

The address to send the applications and fees is:

The MLR Registration Team
9th Floor
Alexander House
21 Victoria Avenue
Southend on Sea
Essex
SS99 1AG

What will happen after I have registered?

Once the registration has been completed, you will be required to implement and monitor the various anti-money laundering procedures. These requirements will include validating the identity of clients and making proper checks on the sources of payments in and recipients of payments out of your trustee accounts.

Contacts for further assistance

If you have any queries in relation to any of the above, please contact Paul Matthews