The discrepancy reporting obligation applies to those members working in an AML regulated firm.
Before establishing a business relationship, with a UK company, unregistered company, LLP or Scottish limited partnership, the firm must obtain proof of their client’s registration on the People with Significant Control (“PSC”) register, or an excerpt of the register.
From 10 March 2022 a business establishing a business relationship with a trust must obtain proof of the trust’s registration on the Trust Registration Service (‘TRS’) if the trust is required to be registered.
If the firm identifies a discrepancy between the information that they gather while carrying out their duties under the 2017 Regulations (during client take on processes), and the information that is on the PSC register or TRS, the firm must report that discrepancy to Companies House or HMRC as applicable.
A person named on the PSC register may not be the person the firm identifies as a beneficial owner under CDD procedures, due to different definitions for a PSC and a beneficial owner.
What constitutes a discrepancy?
The purpose behind PSC discrepancy reporting is to ensure that the information on the PSC register is adequate, accurate and current. “Discrepancy” is not defined in the 2017 Money Laundering Regulations but HM Government’s interpretation of the intention is for material differences to be reported. For further information (including what constitutes a material discrepancy) see the Companies House guidance.
When should a discrepancy be reported?
A discrepancy must be reported as soon as reasonably practicable after the discrepancy is discovered, which would normally be within 15 working days* of establishing that a material discrepancy exists. Bulk reporting on a periodic basis is not permitted.
Firms do not have to wait for a response from Companies House or (HMRC for TRS) before taking on their clients. The decision as to whether to establish a business relationship with that entity is up to the firm, based on their usual risk-based approach. Firms should assess the relevance of any discrepancies within their CDD process. In particular if it appears the discrepancy is intentional, the firm should consider the veracity of other information received from the client.
Discrepancies only have to be reported when establishing a new business relationship. Firms do not have to review the records of existing clients, or report during CDD refreshes.
A discrepancy report is not a substitute for a SAR, but finding a discrepancy does not in itself require a firm to submit a SAR. The normal tests for when a SAR is required still apply – see the helpsheet on SAR reporting for more details.
Time lags in updating the registers
Companies House will investigate the discrepancy report and, in most cases, contact the company. If the information on the register is incorrect, Companies House can use a new power which allows them to remove incorrect information. They will expect the company to update the register and will undertake compliance action if this doesn’t happen.
How do you report a discrepancy?
The Companies House guidance details how to report a discrepancy. Firms should keep records of any reports that are made to Companies House or HMRC for a period of five years, as they would for other Client Due Diligence records.
*Please note a 15 day reporting timescale is a position provisionally agreed with Companies House but is subject to HM Treasury approval.