Update on the Trust Registration Service
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 and 21 February 2020. The Government's response to this consultation is still awaited.
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 current rules, registration is generally required when a trust has a UK tax liability.
Proposed expansion of the TRS
The proposed changes to the TRS resulting from 5AMLD would significantly increase the scope of trusts that will require registration.
It is suggested that trusts entering into a business relationship in the UK 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.
It may also be that 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.
There are currently understood to be about 200,000 trusts that require registration. It is estimated that this may rise 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.
Proposed expansion of access to the TRS
Under the existing rules, access to information on the TRS is reserved to 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 the intention that access will only be given where this 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 adherence by the applicant to their stated aims will be monitored.
Furthermore, in circumstances 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 it is to be hoped that the draft legislation will be amended to take accounts 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 very large number of trusts. A response to this request is still awaited. In the meantime, on 14 May the European Commission (EC) sent the UK (together with a number of member states) a letter of formal notice regarding its failure to fully transpose 5AMLD into UK law. The UK 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 EC). It remains to be seen how the UK Government will react to this letter. However, whether or not implementation of the TRS provisions is delayed further, it is anticipated that the new TRS rules will be introduced eventually, in spite of the UK's departure from the EU.
Forsters' Regulatory Group
The Regulatory team advises trustees, other fiduciary service providers, companies and individuals about their obligations under the UK's ever increasing regulatory framework and the global reporting issues that they need to consider.
This area is becoming increasingly complex and the penalties, both financial and otherwise, for non-compliance are significant. Relevant rules and regulations include (but are not limited to) the Common Reporting Standard, the Trust Registration Service and the Register of Persons with Significant Control. The team advise on the issues that need to be considered, including the information that affected persons must collect, maintain and report, and the form that reporting should take. They also advise on how to proceed when required reporting has not been done.
If you have any questions prompted by this note, or on any related matter relevant to you, please get in touch with a member of the Regulatory team.