Paraplanning and regulation: what you need to know

31 July, 2020Kevin Pope

If you work in paraplanning, you need to keep on top of regulations that apply to financial products, services and advice. Kevin Pope signposts recent changes to money laundering regulations (MLR) through 5AMLD.

Phone and computer screenLaws to address money laundering and terrorist financing are constantly evolving to prevent criminals exploiting and misusing financial markets.

A good example of this is the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (MLR 2019) – EU legislation that came into force in January 2020.

It resulted from the EU’s Fifth Anti-Money Laundering Directive (5AMLD) when the UK was still a member state, and amends the regulations from 2017.

If you’re a paraplanner, you need to be aware of these key amendments.

Electronic ID

MLR 2019 allows you to accept electronic ID verification for customer due diligence (CDD) purposes, but isn’t mandatory.

The definition of ‘tax advisers’ has changed

The MLR 2017 definition was those who provide “advice about the tax affairs of other persons” only.

Under MLR 2019, the definition now includes those who provide “material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party”.

So that includes paraplanners.

Revise your policies, controls and procedures

In effect, this means your firm must put in place policies, controls and procedures, to ensure you can:

identify and scrutinise transactions which are complex or unusually large or involve unusual patterns of transactions or which have no apparent economic or legal purpose”. 

Note that the previous regulation, MLR 2017, obliged firms only to identify and scrutinise transactions which are “complex and unusually large or involve unusual patterns of transactions”.

The change may seem subtle, but it’s important.

You also need to ensure that you’re considering the risk of money laundering or terrorist financing when adopting new products, business practices or technology. You need to take appropriate measures to assess and mitigate this risk.

Finally, you must share information about clients with other companies within the company group, to help prevent money laundering and terrorist financing.

Future changes to regulations on express trusts

The use of trusts is widespread in the UK. So you need to be aware of some significant changes that are coming into play, which will affect the Register of ultimate beneficial owners (UBOs) of trusts.

Currently, HM Revenue and Customs requires registration of:

  • any express trust where the trustees have incurred a tax liability in a given tax year
  • all non-UK express trusts which receive UK sources of income or have UK assets. 

An ‘express trust’ is one which has been deliberately created by a settlor. A ‘tax liability’ includes:

  • income tax
  • capital gains tax
  • inheritance tax, and
  • stamp duty land tax.

The new 5AMLD requirements mean that the register will expand to cover all express trusts. And the register will be available to competent authorities, firms conducting CDD, and any person that can demonstrate a legitimate interest.

Kevin PopeKevin Pope is the Chief Examiner for our Diploma in Business and Commercial Banking and Conduct (DipBB&C) and supports us with the development of learning materials. He is also an examiner and assessor with the Association of Corporate Treasurers and runs his own business, undertaking due diligence and remediation work in financial services.

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