New anti-money laundering regulations came into force in December 2007 which will affect businesses (including firms and sole practitioners) that provide trustee services. Unless the business is supervised by the Financial Services Authority or another designated professional body (such as the Law Society), a pension scheme trustee business will need to register with HM Revenue & Customs (HMRC). Registration enables HMRC to check that firms and individuals have appropriate anti-money laundering controls in place and can continue to provide trustee services. Existing businesses must have applied to be registered by 1 April 2008. New businesses must register before beginning to provide trustee services.
As part of the registration process those providing trustee services need to satisfy a fit and proper person test. This involves HMRC crosschecking details of individuals against information held by HMRC, other regulatory authorities, government and law enforcement agencies and other commercial organisations. Applicants may also be asked to attend one of HMRC's offices to answer questions concerning the application before the process is completed. Once cleared the applicant receives a certificate of registration from HMRC. If an applicant fails the HMRC test the business for which they act will not be registered as complying with the regulations. If an application for registration is refused or cancelled the trust service provider must cease to provide trust services. Continuing to provide services after an application has been cancelled or refused could result in the trustee being fined or imprisoned.
The Regulations would also appear to catch lay trustees if they are paid. For example, it is becoming quite common for trustees to retain their role on the trustee board following their retirement from employment with the sponsoring employer and for them to be remunerated for doing so. Although such people might not immediately be thought to be carrying on a trustee business, the danger is that they will be classed as a business simply by virtue of the fact that they are being paid. We are currently seeking clarification from HMRC on this point so that we can advise clients who have trustees in this situation accordingly.
The aim behind the new Regulations is to deny risky individuals access to the trust or company service provider sectors and this can only be good news for pension schemes that are increasingly looking to use firms and sole practitioners as a means of managing day-to-day trusteeship responsibilities. In our experience, however, most firms and sole practitioners acting as pension scheme trustees appear to be unaware of the new registration requirements and the impending deadline. This is not only a concern for these types of trustee - who could be hit by a fine and possible imprisonment by failing to register - but also for pension schemes who should only be using trustee service providers who are cleared by HMRC in this way or are supervised by another appropriate body.
The message coming out of the new Regulations to those who provide trustee services is clear: unless you are supervised by a designated body, you must ensure you are registered with HMRC and receive a certificate of registration from them. Actuarial firms providing trustee services should check their position as the Institute and Faculty of Actuaries do not appear to be included in the list of recognised designated bodies set out in the Regulations. With the 1 April deadline looming, pension schemes that have paid trustees on board would be wise to question their compliance with the Regulations and, where appropriate, ask for evidence of registration with HMRC.
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