New money laundering requirements came into effect on 26 June 2017 which impose new compliance obligations on trustees of occupational pension schemes. There are three key duties which centre on record-keeping, the provision of information to third parties in certain circumstances and submitting information to HM Revenue & Customs (HMRC) for purposes of its register of beneficial ownership.

Key Points

  1. New money laundering regulations are in force New money laundering requirements came into effect on 26 June 2017 (the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017) (MLR 2017). They replace the Money Laundering Regulations SI 2007/2157.
  2. Implements EU Directive The new regulations implement the Fourth Money Laundering Directive (EU) 2015/849.
  3. New compliance duties on pension scheme trustees The new money laundering requirements impose new compliance duties on trustees of occupational pension schemes as regards record-keeping, the provision of information to certain third parties and reporting to HMRC. While for some schemes, the practical impact may be very small, others (depending on how their assets are invested) could find themselves with onerous obligations unless HMRC is prepared to issue guidance confirming more practical requirements for pension schemes.

Background

The new money laundering requirements implement the Fourth Money Laundering Directive (EU) 2015/849.

Under the previous 2007 money laundering regime, trustees of occupational pension schemes, (including professional trustees who act only in relation to occupational pension schemes), were not required to register with HMRC for money laundering purposes or to take related compliance actions. HMRC's position in this regard under the new regulations is unchanged (as set out in its recently updated guidance).

However, pension schemes trustees may find themselves subject to new duties under the MLR 2017 because of the inclusion of provisions applying to "relevant trusts" which, as defined in the regulations, includes occupational pension schemes.

New money laundering duties

Duty 1: to keep accurate and up-to-date records

Trustees are obliged to maintain accurate and up-to-date written records of all "beneficial owners" of the trust. Beneficial owners include the trustees of the trust, its beneficiaries and the settlor. In practice, the type of information that trustees will need to hold will include:

  • in relation to beneficiaries: their name, national insurance (NI) number or unique taxpayer reference number (or failing those the individual's usual residential address), date of birth and the individual's role in relation to the trust. (Additional information as regards passport or ID details must be held where an individual does not have a NI or taxpayer reference number and the trustees instead hold an address for the individual which is not in the UK);
  • the full name of all advisers who are paid to provide legal, financial or tax advice to the trustees in relation to the trust; and
  • a contact address for the trustees.

Trustees should hold much of the required information in any event, but will still need to make some checks to ensure they are complying with these requirements, in particular if for any reason a member does not have an NI number or tax payment reference and is based overseas. Trustees should speak to their administrators to check the position.

Duty 2: to disclose beneficial ownership information to third parties

Where pension scheme trustees, on behalf of the trust, enter into a relevant transaction or form a business relationship with a "relevant person" they must:

  • inform that person that they are acting as a trustee (this will usually be happening already); and
  • on request, provide information about the beneficial owners of the trust, to that person. Helpfully, in these circumstances, this is a more limited disclosure obligation which is satisfied by providing a generic description of the class of persons who are beneficiaries of the trust (or potential beneficiaries), rather than having to disclose specific details about individual beneficiaries.

Further, if this information is requested and provided, there is a duty on trustees while the business relationship endures to update the relevant person of any subsequent changes within 14 days of becoming aware of the change.

For this purpose, a "relevant person" includes a credit institution, financial institution, auditor, external accountant, tax adviser or lawyer who are not exempt from the requirements to carry out due diligence checks in relation to money laundering and undertake other money laundering compliance actions.

Also, where it is requested, more detailed beneficial ownership information must be provided to specified law enforcement authorities, including the Serious Fraud Office, the Financial Conduct Authority, the National Crime Agency and the various UK police services, within a timeframe specified by that authority (which must be reasonable).

Trustees do not need to take any action as regards this requirement, other than to be aware that they must comply with such requests for information if made.

Duty 3: Provision of trust and beneficial ownership information to HMRC

In addition, there is a requirement to provide information about the trust and also its beneficial owners to HMRC in relation to any tax year in which the assets or income of the trust are liable to any of the following taxes:

  • income tax;
  • capital gains tax;
  • inheritance tax;
  • stamp duty land tax;
  • stamp duty reserve tax; and
  • land and buildings transaction tax.

We would not normally expect assets or income of an occupational pension scheme to be subject to income tax, inheritance tax or capital gains tax. However, pension schemes are likely to be caught by stamp duty land tax or stamp duty reserve tax if they invest directly in shares or property including by way of a discretionary investment management agreement with a fund manager. Such charges should not be incurred if investments are made through a pooled fund product or similar product on the basis that we would expect the fund operator to be responsible for those tax charges. In order to assess whether this duty to report to HMRC applies, trustees will need to be clear about how their scheme's investments are actually managed and whether that gives rise to any of the stipulated tax charges, and they should speak to their investment consultants/managers about this.

Where applicable, the information must be provided initially by 31 January 2018 or a subsequent 31 January after the tax year in which the pension scheme assets or income were first subject to any of the stipulated tax charges. Thereafter, trustees must update the information or confirm to HMRC that it has not changed by 31 January after any tax year in which they were liable to pay any of the stipulated taxes.

The type of information that will need to be submitted to HMRC will include:

  • in relation to the trust: the details of those who provide legal, tax and financial advice to the trustees in relation to the trust and a statement of accounts for the trust describing the trust assets and identifying the value of each category of the trust assets as at the date on which this information is first provided to HMRC; and
  • in relation to beneficiaries, (being part of the beneficial owners group), the detailed information described under duty 1.

This is potentially a very onerous obligation (and we would suggest impractical and disproportionate for registered pension schemes) involving trustees having to submit considerable amounts of information in respect of a large number of members to HMRC. We understand that various industry bodies continue to discuss this with HMRC and have raised concerns.

We expect that HMRC will issue guidance to the pensions industry on how it intends these requirements will work in practice. This is to be welcomed as there are areas of uncertainty in the regulations around the extent of the disclosure obligation (amongst other things) on which clarity is required. HMRC has indicated that it will be taking a pragmatic approach in order to minimise the burden placed on the pensions industry by this new requirement. We are monitoring this and will update clients accordingly. We hope that a more pragmatic position will be reached with HMRC well before the first reporting date of 31 January 2018.

Next steps - what should trustees do now?

Trustees need to be aware of these new obligations. Whilst we would expect schemes to hold most of the information referred to in the section on duty 1, trustees may want to contact their administrators to check that they do actually have all of that information in practice.

By far the most onerous obligation is the requirement to provide beneficial ownership and trust information to HMRC. Whilst we are waiting for HMRC to clarify its requirements in this regard in guidance, trustees may wish to start considering whether the assets and income of their scheme are subject to any of the stipulated tax charges. In practice, this will most likely depend on how the scheme makes investments and we suggest that trustees may want to raise this with their investment consultants/managers as a first step.