Why and how the EU’s 5th Anti-Money Laundering Directive is going to affect you

The 4th Anti-Money Laundering Directive (4AMLD) introduced the Trust Registration Service because Europe was trying to prevent the use of the financial system for the purposes of money laundering and terrorist financing. 

However, to keep up and counter these, the 5^th AMLD introduced further measures to increase transparency of financial transactions, of corporate and other legal entities, as well as of trusts and legal arrangements having a structure or functions similar to trusts. 

The UK is looking to implement 5AMLD in full irrespective of its status within or outside of the EU as the UK had been actively involved in formulating the Directive.

5AMLD is already in force but the Government had delayed how it would enhance the TRS in light of this.  It has now produced their proposal and opened a consultation on this from 24^th January to 21^st February.

The proposal is the existing TRS will be expanded to include UK express trusts (and some non-EU resident express trusts) irrespective of whether the trust has incurred a tax liability.  However, they have made some exceptions where the type of trust has a low risk of being used for money laundering or terrorist financing.

So the starting point is ALL trusts need to now be registered and kept up to date on TRS unless they fall within:

1. Statutory trusts such as those arising on intestacy
2. ‘Holding’ trusts such as tenants service charge contributions protection trusts and presumably the tenancy deposit protection schemes
3. Trusts arising out of joint ownership such as joint owners of a house or bank account
4. Bare trusts (at least for now but they are looking at these further)
5. Vulnerable beneficiary trusts, personal injury trusts and maintenance fund trusts for historic buildings
6. Trusts holding life insurance policies, income protection policies or policies solely for the payment of retirement death benefits
7. Pension schemes registered with HMRC
8. Charitable trusts
9. Trusts already registered in another EU member state

The information to be inputted into the TRS will be wider than that currently collected and trusts already registered will have to add further information once the new TRS is launched.

New trusts falling within the wider net of TRS will be expected to register in 2021.  The Government proposes that:

• Trusts in existence at 10 March 2020 must register by 10 March 2022
• Trusts that are set up after 10 March 2020 must register within 30 days or by 10 March 2022, whichever is the later
• Trusts that are set up on or after 10 March 2022 will have 30 days to register
• Once registered on the updated system, trustees will have 30 days from when they are aware of any changes to update the details
• Until 10 March 2022, all trusts that incur a tax liability for the first time should register on the current TRS as is now

The proposed penalties for either failing to register or failing to update are:

• No penalty for failing to register but a notification (nudge letter) will be sent to the trustee (unless the trustee is found to have deliberately failed to register rather than as a result of mistake and then may be a financial penalty)
• The first failure to update details within the time limit would similarly just have a letter (unless it was deliberate on the part of the trustee) but for a second and each subsequent failure to update details within the time limit there would be a £100 penalty per offence

The consultation ends on 21^st February.  Given how short the consultation period is, I do wonder whether we can assume this will be introduced as suggested as is almost a fait accompli.