The consultation on the 5th Money Laundering Directive (5MLD) closed on 10 June 2019. This directive is set to make amendments to the 4th Money Laundering Directive (4MLD) to enhance transparency in financial systems across the EU.
A significant change that will be introduced by the 5MLD is the expansion of the trusts beneficial ownership register, which is held by HMRC. Whereas the previous 4MLD required only tax paying UK express trusts to register with the Trust Registration Service, the new 5MLD will expand this registration requirement to all express trusts even if they do not incur a tax consequence. There are no carve-outs, exemptions or minimum threshold requirements. This means that a much broader pool of charities will be caught by the registration requirement.
The government has not specified the full list of types of trust that will need to register with the Trust Registration Service. However, it is highly likely that charitable trusts will be caught. As charitable trusts can be created in a number of different ways, the new 5MLD could go as far as requiring registration by unincorporated associations and incorporated charities that hold trusts, such as endowments and restricted funds.
While the additional registration requirements have the capacity to cause an added burden for many charity trustees, the 5MLD consultation has outlined that the government is considering whether existing registration services could be used for particular types of trust. If this were to become the case, it is possible that trusts registered with the Charity Commission would not need to register again. Those trusts falling outside of Charity Commission registration requirements would still need to register separately with the Trust Registration Service.
The existing 4MLD holds data collection requirements relating to information on trustees and beneficiaries. The 5MLD requires the UK to share, and therefore first collect, information relating to these 'beneficial owners'. The consultation document indicates that the Government may choose to collect additional information, such as National Insurance or passport numbers. However, it is also outlined that the government intends to collect more information on trusts that have a tax consequence as opposed to those which do not pay tax.
There is also a proposed requirement that information on the beneficial ownership of any trust be kept up to date. If any details of the trust's beneficiaries change, trustees will need to update the register within 30 days of becoming aware of the change.
For trusts already in existence on 1 April 2020, the government has proposed a deadline of 31 March 2021 to register and, for any trusts created after 1 April 2020, a 30 day time limit is proposed. There may be penalties for late registration but the penalty framework has not yet been specified and there will be a further consultation on what this will be.
A more detailed technical consultation will be run by HMRC on the trusts registration aspect of the 5MLD later this year. The deadline for the full transposition of the 5MLD is 10 January 2020.