Changes to Discrepancy Reporting for Companies and Trusts

Changes to Discrepancy Reporting for Companies and Trusts

New legislation came into effect on 1 April 2023 that introduces a series of new Anti-Money Laundering (AML) requirements for regulated firms and tightens the requirements for certain Trusts that fall within the scope of discrepancy reporting.

The new rules require businesses subject to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) to conduct checks of the register of overseas entities (ROE) at Companies House for dealings with corporate entities.

The amended MLRs also require obliged entities to report ‘material’ discrepancies throughout a business relationship rather than just at the start.

A material discrepancy is newly defined to include those discrepancies which may reasonably be considered linked to money laundering or terrorist financing or to conceal details of a customer’s business. Firms will also need to obtain an excerpt of the relevant register as part of the customer due diligence process.

The Government has also extended reporting requirements for the Trust Registration Service (TRS). From the beginning of April, customer checks must be continually conducted on all existing business relationships with relevant trusts rather than just as part of the onboarding process.

The changes are the latest in a series of amendments to reporting requirements introduced by the UK Government as it attempts to improve transparency and combat money laundering and terrorist financing.

Failure to comply with the new requirements will likely result in significant penalties for businesses.

The UK Government had previously announced a raft of changes to MLRs in September 2022, which introduced a series of measures, including:

  • A requirement for regulated firms to conduct business-wide proliferation financing risk assessments and maintain appropriate controls and procedures for combatting proliferation financing activity.
  • A broadening of the definition of a ‘trust or company service provider’ (TCSP) to include firms which provide services relating to the formation of all types of business arrangements, including Limited Partnerships, and an expansion in the scope of TCSP due diligence obligations to include ‘one-off’ business relationships.
  • A new power for supervisors to request suspicious activity reports from regulated entities.
  • The implementation of the FATF ‘travel rule’, which extended elements of the existing information sharing regime for wire transfers to transfers of crypto assets.

HM Treasury is expected to consult on further changes to the Money Laundering Regulations (MLRs) before the end of 2023, as announced in the second Economic Crime Plan 2023 to 2026.

HMRC intends to include proposals on the TRS elements of the MLRs within any such consultation, focusing on the scope of, and exclusions from, the requirement to register on the TRS.

With new changes being introduced and more likely, regulated firms must ensure that their existing business-wide risk assessments are sufficiently robust to account for proliferation financing risk. Ongoing training and further guidance to staff will also likely be needed.

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