5MLD proposal: new rules to extend TRS
21 February 2020: HM Treasury has published its consultation on the extension of the Trust Registration Service (TRS) as required under the Fifth Money Laundering Directive (5MLD).
The new rules will extend the registration obligation to all express trusts – other than those excluded from scope – and not just those trusts with a tax consequence.
It follows the changes to the Money Laundering Regulations that took place on 10 January 2020 to reflect all other aspects of 5MLD.
The core thrust of the changes – which will come into force this year – will have a direct impact on the trusts to be included, those deemed to be out of scope, implementation dates, the penalties for non-compliance and information access and collection.
The proposed deadlines will mean that trusts in existence at 10 March 2020 must register by 10 March 2022, while those set up after 10 March 2020 must do so within 30 days or also by 10 March 2022 – whichever is later. Penalties for failure to register would be light at first but trustees found to have deliberately not registered would later be subject to financial penalties.
The government proposes that trusts should be exempt from registration where their purposes and structure mean payments to beneficiaries are predetermined and highly controlled. The government also proposes excluding trusts that are already supervised by HMRC or other regulatory bodies from registration.
This means that, for example, trusts used for jointly owning a home with a partner or friend and trusts to hold life insurance or retirement death benefits would be out of scope. The government also proposes that most registered pension schemes and charitable trusts would be out of scope of registration.
Registration would also be needed for some non-UK resident express trusts that enter into a business relationship with advisers such as UK accountants, lawyers or banks, or acquire real estate in the UK.
The rationale for the extended trust register is to further improve transparency of beneficial ownership of UK assets. There will be a mechanism for third parties to request access to some of the details of the individuals who control and benefit from a registered trust if they can show they have a legitimate interest in the data.
A case must be made that this data is needed for an investigation into suspected money laundering or terrorist financing. Journalists and other transparency-focused organisations are likely to seek access.
The government proposes that there will be safeguards to protect vulnerable individuals at risk of harm from having their data disclosed, but it remains to be seen how such controls would work.
The deadline for submissions, for which ICAEW is preparing its own response, is Friday 21 February 2020. The ICAEW response will be available here.