Money laundering regulations for pension scheme trustees – update
19 September 2017
The UK Government issued new money laundering regulations on 26 June 2017. The regulations are aimed at preventing money obtained as a result of criminal activities from appearing to come from legitimate sources and from being used to finance terrorist activities.
Although it is unlikely that occupational pension schemes could be used for such purposes, the regulations contain obligations that apply to trusts in general and as such are relevant to pension scheme trustees. There are also additional obligations that apply to professional trustees.
Compliance should not be too onerous and HMRC has indicated that it will take a pragmatic and proportionate approach and that it considers occupational pension schemes to be low risk trusts.
Requirements for pension scheme trustees generally
The new requirements that schemes need to be generally aware of are twofold:
Record keeping: Trustees will need to “maintain accurate and up-to-date records in writing of all the beneficial owners of the trust, and of any potential beneficiaries“. In practice, we understand HMRC’s view is that this means that trustees will need to keep information about:
Employers: The original employer(s) that established the scheme and the current employers. Trustees should already have this information to hand as details of current employers are required to be included in the scheme’s annual return.
Beneficiaries: Where a scheme has beneficiaries who are not currently known, the trustees will need to keep records describing the classes of beneficiaries and potential beneficiaries. Any schemes that provide death benefits or are open to new members are likely to have unknown beneficiaries. Other schemes will need to consider the position more carefully and where they do not have any potentially unknown beneficiaries, will need to record prescribed details of individual beneficiaries.
The trustees will have to supply this information on request to: (a) various public bodies including HMRC and the FCA; and (b) people they deal with who are also covered by Money Laundering Regulations (this will generally be professional advisers including lawyers, accountants, auditors and fund managers). The information provided to parties such as professional advisers will need to be updated within 14 days if the trustees become aware of any change in it.
Registration: Trustees will need to register with HMRC’s new beneficial owner register if the scheme is liable to pay: income tax, capital gains tax, stamp duty land tax, stamp duty reserve tax or Scottish land and buildings transaction tax. Occupational schemes benefit from many tax exemptions, but depending on how their investments are structured, can incur some tax liability. This is something that trustees should be able to check with their accountants and fund managers.
In most cases, registration will need to take place by 31 January 2018. However, trustees of an arrangement which needs to become registered for self-assessment for the first time by 5th October 2017, will need to comply with these new registration requirements at the same time.
On registration, trustees will need to provide a variety of information, including: (a) details of the trust (such as when it was set up, contact details for the trustees and the names of any advisers who are being paid to provide legal, financial or tax advice); (b) a statement describing the scheme assets which can generally be taken from the scheme accounts (providing they contain a reasonably good estimate of the market value of the assets); and (c) a description of the classes of beneficiaries and potential beneficiaries (assuming there are unknown beneficiaries as explained above – if there are not, prescribed information about each individual beneficiary must be provided).
In addition, in the run up to each 31 January, trustees should check with their advisers whether they need to update an existing registration or register for the first time.
Additional requirements for professional trustees
Professional trustees have been subject to requirements in relation to money laundering for some time and much remains unchanged. The key areas that they need to be aware of are:
Retaining records: A paid professional trustee will be required to keep the records referred to above for “a period of five years after the date on which the final distribution is made under the trust” (which will be when the scheme is wound-up).
Registration: There are additional requirements for “trust or company service providers” to register with HMRC in connection with the anti-money laundering regime. However, HMRC guidance says that registration will not be required for trustees of trusts that are occupational pension schemes because they are considered to be low risk. This reflects HMRC’s position before the new regulations were introduced.
Due diligence: Professional trustees will be required to verify the identity of anyone they enter into a contract with. Simplified due-diligence is possible in transactions which are considered to be low risk and HMRC guidance suggests that transactions in relation to occupational pension schemes may often be considered as low risk.
Risk assessment: As currently, a professional trustee will need to carry out a risk assessment to identify where its business might be vulnerable to money laundering and terrorist financing and have appropriate policies and controls in place to manage these risks.
HMRC has updated the relevant guidance for professional trustees.
HMRC is clear that it will apply a pragmatic approach to the enforcement of these regulations but trustees should be aware that there are civil and criminal sanctions for failing to comply with these requirements.
Occupational pension scheme trustees need to ensure that they have started to keep the relevant records and decided whether they will need to register with HMRC by 31 January 2018.
For more information please contact: