FATF invites STEP to discuss potential revision of Recommendation 25

The Financial Action Task Force (FATF) is conducting a review of Recommendation 25, which covers the transparency and beneficial ownership of legal arrangements. The FATF’s objective is to improve Recommendation 25 and its Interpretive Note to meet its overall objective of preventing the misuse of legal arrangements for money laundering or terrorist financing.

The FATF recently invited STEP and other stakeholders to attend a private sector engagement forum in early November to understand their views on several key areas.

The forum participants discussed the definition of trusts and equivalent legal arrangements in common/civil law systems. The discussion focused on whether a common definition could be introduced in order to clarify where the law is unclear.

This section also covered the key challenges of understanding the nature and structure of common law express trusts and civil law legal arrangements.

The key challenges in understanding and verifying beneficial owners in the context of trusts, and how the concepts of ‘ownership’ and ‘control’ would apply to them, were also discussed. The types of information collected to establish beneficial ownership of trusts, and the challenges of collecting this information of foreign legal arrangements operating in countries without the necessary legal framework, were also covered.

The FATF also raised how it wished to establish to what degree identification of beneficial owners should be inherently part of a trustee’s duties and asked whether this should be an explicit obligation.

One of the major focuses of the forum was to examine some of the ways that trusts and other legal arrangements can purposely be used to disguise ownership and evade transparency. Discussion also focused on complex ownership structures and how they could be defined and identified more clearly. Challenges can arise in existing multi-layered structures where the legal entity being identified is lower down the chain of ownership and in some cases, verifying the beneficial ownership of the ultimate holding entity, can be unclear.

The FATF stated that it would welcome any written proposals with suggested amendments for Recommendation 25 until the end of the year. The next step would be a planned public consultation in Q3 2022: however, this will be open to change if necessary.

In parallel with this review of Recommendation 25, the FATF are also reviewing amendments to Recommendation 24, which focuses on the transparency and beneficial ownership of legal persons. The FATF is consulting on suggested amendments to Recommendation 24 and STEP is planning on responding.

Robert Carington is Policy Executive at STEP

Modernising LPAs: consultation published

STEP informed members in November 2020[1] that the Ministry of Justice (MoJ) and the Office of the Public Guardian (OPG) had jointly initiated a project to modernise the process of making and registering lasting powers of attorney (LPAs) in England and Wales. The collaboration involved a series of stakeholder working groups to obtain research that has culminated in the publication of the consultation that was published this week.[2]

STEP was invited to sit on the Modernising Lasting Powers of Attorney (MLPA) stakeholder working group and has attended various workshops over the past six months to help shape and develop the consultation. The consultation will further engage with the public and stakeholders to gather their views on proposals to modernise the creation and registration of LPAs, helping the government to expand its evidence base and prepare for any legislative changes.

The overarching objectives of the modernisation project are to:

  • increase safeguards, especially for the donor
  • improve the process of making and registering an LPA for donors, attorneys and third parties
  • achieve sustainability for the OPG while keeping LPAs as affordable as possible for all people in society.

The consultation considers how best to achieve these aims and what amendments to primary legislation might be needed to facilitate them. Any substantial changes will require amendments to the Mental Capacity Act 2005, which brought in the current system. 

The consultation also intends to review the following aspects of the existing regime:

  • How witnessing works and whether remote witnessing or other safeguards are desirable.
  • How to reduce the chance of an LPA being rejected due to avoidable errors.
  • Whether the OPG’s remit should be expanded to have the legal authority to carry out further checks such as identification verification.
  • How people can object to an LPA and the process itself, as well as when is the right time for an objection to be made.
  • Whether a new urgent service is needed to ensure those who need an LPA granted quickly can get one.
  • How solicitors access the service and the best way to facilitate this.

STEP has emphasised that there need to be more advanced identity checks for donors, which would consequently improve safeguards, since identity fraud and theft are currently accessible particularly if someone has access to a Health & Welfare LPA and the donor is incapacitated or vulnerable. We have also highlighted that ID verification online may be technologically robust but there will be a small demographic, usually the more elderly, that do not have access to a computer or smartphone for verification. The MoJ and OPG have stressed that empowering and protecting the individuals acting as donors in the LPA process is of paramount importance and amendments to the legislation will only be made if modernisation will provide the same level of protection or preferably enhance it. However, it is clear that the industry is becoming more digital and we have seen accelerated evolution on the digital platform due to the COVID pandemic in the last couple of years. STEP has reinforced that it is essential that any new online system is securely piloted within the industry before it is implemented.

The MoJ and OPG are holding a consultation launch event on 28 July for members of the MLPA stakeholder working group, which STEP will attend. The event will be introduced by Minister Chalk and the Public Guardian, Nick Goodwin, which will be followed by a Q&A panel with the Public Guardian and members of the MLPA team.

The consultation seeks all views from the private sector and will remain open for 12 weeks, until 13 October 2021. STEP will be submitting a formal response in due course.

Emily Deane TEP, STEP Technical Counsel


[1] STEP Blog: https://blog.step.org/2020/11/23/modernising-lasting-powers-of-attorneys-in-england-and-wales/

[2] https://consult.justice.gov.uk/opg/modernising-lasting-powers-of-attorney

Trust Scotland Act 1921 centenary prompts call for reform

Emily Deane TEPThe Edinburgh Tax Network celebrated the 100th anniversary of the Trust Scotland Act 1921 by hosting a web event for stakeholders this week, which STEP attended. The centenary of the Principal Statute on 19 August has prompted the Scottish Law Commission to submit a draft bill for potential reform, the Trusts (Scotland) Bill, to the Scottish Parliament.

The web event panel consisted of Lady Ann Paton (Chair of the Scottish Law Commission), The Hon Lord Tyre and Lord Drummond-Young who discussed the overwhelming need for modernisation. They noted that current legislation has been heavily amended, making it convoluted and difficult to use, and much of the content is now largely obsolete.

The panel stressed that reform is essential in order to shape an innovative and high tech economy, comply with the more modern applications of trust law, and support businesses recovering from the pandemic.

The Scottish Law Commission’s proposals for reform include, but are not limited to, the following:

  1. recognition of trusts’ inherent simplicity and flexibility;
  2. appointment of Protectors;
  3. recognition of the commercial use of trusts. The current legislation fails to deal with commercial trusts, which have significantly developed in the last 40 years;
  4. express recognition of private purpose trusts;
  5. trustees’ powers should be flexible and wide, similar to a natural person managing his or her own affairs;
  6. courts given simplified and effective powers to deal with trust litigation;
  7. courts given power to remedy defects in the exercise of fiduciary powers;
  8. coherent provisions governing decision-making by trustees, beneficiaries’ information rights, delegation to agents, trustees’ liability for breach of trust and trustees’ liability to third parties.

The Scottish Law Commission’s review runs concurrently with the announcement of the Law Commission of England and Wales to reform trust law earlier this year under its 14th Programme of Law Reform. The EW review will focus on modernising legislation that has not been updated since 1925, and will explore modern and efficient structures in other jurisdictions to bring it up to international standards.

Both Law Commissions say it is essential to update trust legislation to uphold competitive economies and maintain their status as international financial centres.

STEP will continue to keep members apprised on both of these legislative developments.

Emily Deane TEP, STEP Technical Counsel

Progress on digital legacy planning from internet service providers

Two leading tech firms have announced significant changes to digital legacy options.

Apple

Robert CaringtonApple is to offer a digital legacy service for user accounts, according to reports from CNET and Digital Legacy Management. The move, announced at its annual Worldwide Developers Conference this week, follows reports of families taking service providers like Facebook to court to gain access to deceased family members’ accounts. Users can either permit access to a named individual, the ‘administrator’, or choose to have their accounts deleted. The new function is expected to be released later this year, though no date has been set.

The administrator will sign in through a ’legacy contact Apple ID’ and will need an access key to see password-protected data on Apple devices. He/she will also be able to view data stored in iCloud, Apple’s cloud service, which can then be downloaded, but will not have access to payment information, such as stored credit cards, or logins stored on a user’s Keychain.

While the service has not been officially released, Apple has already set up a dedicated web page. The user needs to enter their Apple ID login to get to the digital legacy page, which gives them the option to specify that their account be deleted when they die.

However the main question, which is yet to be answered by Apple, is how the service will work if the designated legacy contact does not use any Apple products. It is also unclear whether the administrator will be able to access the new system from devices using other operating systems, such as Android.

LinkedIn

LinkedIn also now offers options for those authorised to address a deceased person’s account, memorialise or close a deceased member’s account, according to a blog by Sharon Hartung TEP. Whilst these are not classed as pre-planning tools (advance selections) with respect to addressing an account member’s wishes and preference upon death, they do allow the fiduciary to either request a LinkedIn profile to be closed or memorialised.

Next steps, and STEP’s Thought Leadership work

Both moves follow in the footsteps of Google’s inactive account manager, which has been going for some years. It is hoped that other vendors and tech providers will respond to consumer expectations and follow suit.

In the meantime STEP continues its Digital Assets Thought Leadership work, which is focusing on engagement with service providers, and documenting the difficulties that professionals and members of the public may encounter with digital assets and service providers across various jurisdictions, in particular regarding estate planning and digital legacies.

STEP and the Microsoft-funded Cloud Legal Project at Queen Mary University of London have recently jointly undertaken a survey to ascertain the awareness, experiences, and concerns of practitioners in dealing with digital assets, in relation to both estate planning and digital legacies. The information gathered will subsequently inform and set the framework for resulting activities and education of value to practitioners, service providers, policymakers and the public.

Robert Carington is Policy Executive at STEP

What are your views on a STEP testamentary capacity assessment course?

Emily Deane TEPSTEP is considering the development and implementation of an online testamentary capacity assessment course and is keen to assess members’ appetite and enthusiasm. With very little guidance or industry training currently available, an online course could be a valuable educational tool for anyone required to interact with capacity assessments.

The background to the course

In 2017 the Law Commission of England and Wales produced a consultation report on reform of the law of wills. While its work was postponed, it is likely to recommence early next year. Paragraph 2.132 of the report notes ’stakeholders have raised the possibility of introducing an accreditation scheme.. this would deal with the problems raised by the Golden Rule by directing testators and professionals towards people competent to undertake capacity assessments. An accreditation would mark out who could best assess capacity in difficult cases. Accreditation would also be persuasive in litigation should capacity be contested after the death of the testator…’.

It continued, ‘a scheme might be operated by a private organisation who would accredit lawyers, medical professionals and social workers to assess capacity… we recognise the value of private accreditation schemes’.

STEP believes it is exceptionally well-placed to offer its members an accredited scheme of this kind, if they would find it beneficial and valuable to their professional duties.

The proposed course

The course is likely to be webinar-based, comprising a series of interlinked sessions provided by relevant experts including solicitors, counsel and medics. Modules are likely to include:

  • Capacity – and the issues that affect it.
  • Law – the legal tests of testamentary capacity (for example considering the Banks v Goodfellow test in contrast to the Mental Capacity Act 2005 – and how these tests are treated by courts).
  • Practice – dealing with medics, matters to include in file notes, the importance of family trees, assessing clients.
  • The introduction of a standardised testamentary assessment questionnaire.

Other considerations are whether the course will be adapted for implementation across the common law jurisdictions, and whether completion will provide accreditation.

Join the debate

We would like to invite you to a free discussion on Wednesday 30 June at 4.30pm (BST) to explore the proposals for this course in more detail. Claire van Overdijk TEP (Chair of the STEP Mental Capacity Special Interest Group (SIG)) will moderate a panel discussion including Professor Robin Jacoby, Alexander Learmonth QC TEP, Australian neuropsychologist Dr Jane Lonie and Stephen Lawson TEP. The panel will discuss its views and there will be opportunities for questions.

Emily Deane TEP, STEP Technical Counsel

Invitation to STEP/Law Commission free webinar on its 14th Programme of Law Reform

Emily Deane TEPThe Law Commission of England and Wales has announced a public consultation on its 14th Programme of Law Reform and has published a scoping document providing background on the programme and ideas for potential projects.

STEP is hosting a joint webinar with the Law Commission on 19 May to discuss the proposals in further detail. The major areas of focus are:

The Wills Project, paused in 2017, will review the Wills Act 1837 to give it a radical overhaul, including possible reform of key principles of the legislation, modernising the language and reforming any ambiguities. Many consider that reform in this area is long overdue and there is a need to review testamentary capacity, statutory wills, supported will-making, the formalities, the protection of vulnerable testators, and of course digital aspects such as electronic signatures and execution. We understand that the Commission hopes to pick this project up again by early 2022.

The Trust Project will be an initial scoping study investigating problems with English trust law, with a view to modernising and updating it in line with international standards. It will explore the current limitations with trust law and examine how it could be updated to facilitate more competitive trust services in a global market.

The project will review alternative trust and trust-like structures available in other jurisdictions, for example, Jersey’s Foundation Law and Cayman’s Star Trusts, and will consider whether similar structures could be implemented. The project will also review the law governing certain categories of statutory trust, and identify technical trust law issues that may need general updating and reform.

The scoping document acknowledges that English trust law has not been comprehensively reviewed since 1925 and notes that Singapore and New Zealand have updated their laws and been creative in maintaining a healthy trust market, whilst other countries have implemented new trust and trust-like structures to meet demand.

The Commission has clarified that the trust project will not make recommendations regarding the taxation of trusts, for which HM Treasury has policy responsibility, and the project will therefore exclude the law of mistake which has significant tax consequences.

STEP members and non-members are welcome to join our free webinar on Wednesday 19 May at 4.30pm (BST) entitled ‘Modernising trust law for a global Britain’ in which we will explore the Law Commission’s 14th Programme of Law Reform with a specialist Law Commission and STEP panel.

Emily Deane TEP, STEP Technical Counsel

MoJ announces consultation on court fee increases

Emily Deane TEPThe UK Ministry of Justice (MoJ) has announced a public consultation on increasing selected court fees in line with historical inflation dating from August 2016 to April 2021, or from the year the fee was last amended (capped at August 2016).

The proposal is limited to fees which are under-recovering compared to the estimated cost of the service, and to fees which are enhanced so that they can legally be set above the cost of service. The impacted fees are included in the following fee orders:

  • Family Proceedings Fees Order 2008 No 1054 (43 impacted fees);
  • Civil Proceedings Fees Order 2008 No 1053 (67 impacted fees);
  • Court of Protection Fees Order 2007 No 1745 (3 impacted fees);
  • Magistrates Courts Fees Order 2008 No 1052 (20 impacted fees).

The proposed fee increases will raise an estimated additional net income of GBP11-17 million a year for HMCTS after fee remissions.

In addition to increasing fees, the government also proposes to widen access to the Help with Fees scheme. This includes raising the income thresholds in line with inflation, including the couple and child premiums, backdated to August 2016. The extended scheme is intended to benefit those who feature disproportionately among low income groups, including women, people from black and minority ethnic backgrounds, disabled people and younger people.

Responses are invited by 17 May. Feedback can be submitted via an online survey using the link below, by email: [email protected], or by post to: Fees Policy Team, Ministry of Justice, 102 Petty France, London SW1H 9AJ.

STEP will continue to keep members apprised of any developments.

Emily Deane TEP, STEP Technical Counsel

OECD steps up the fight against enablers of tax and financial crimes

Robert CaringtonThe Organisation for Economic Co-operation and Development’s (OECD) Task Force on Tax Crimes and Other Crimes launched its new report, Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar Crimes, during the 2021 OECD Global Anti-Corruption & Integrity Forum this week. The report sets out a range of strategies and actions for countries to tackle professional intermediaries who enable tax evasion and other financial crimes on behalf of criminal clients.

The panel for the launch event included Jim Lee, US Internal Revenue Service; Caroline Lee, International Ethics Standards Board for Accountants (IESBA); Grace Perez-Navarro, OECD; and Simon York, HMRC. The webinar was moderated by Will Fitzgibbon of the International Consortium of Investigative Journalists.

The event highlighted the damaging role played by intermediaries who enable financial crimes on behalf of their criminal clients, and their increasingly sophisticated technical methods, such as the use of cryptocurrency. The panel agreed that concerted domestic and international action is needed to clamp down on the enablers of crime. They recommended a closer partnership between public and private sectors to report on non-compliance and prevent such crime. Countries were urged to increase their efforts to better deter, detect and disrupt the activities of professionals who enable tax evasion and other financial crimes.

The report states that the majority of professional service providers are law-abiding, and play an important role in assisting businesses and individuals to understand and comply with the law. However there is a small subset that abuse their specialised skills and knowledge to enable clients to defraud the government and evade their tax obligations, and these need to be tackled.

The report calls on countries to establish or strengthen national strategies to deal with professional enablers more effectively. Such strategies should:

  • ensure that tax crime investigators are equipped to identify the types of professional enablers operating in their jurisdiction, and understand the risks posed by how they devise, market, implement and conceal tax crime and financial crimes;
  • ensure the law provides investigators and prosecutors with sufficient authority to identify, prosecute and sanction professional enablers, both to deter and penalise;
  • implement multi-disciplinary prevention and disruption strategies, notably through engagement with supervisory, industry and professional bodies, to prevent abusive behaviour, incentivise early disclosure and whistle-blowing and take a strong approach to enforcement;
  • ensure relevant authorities proactively maximise the availability of information, intelligence and investigatory powers held by other domestic and international agencies to tackle sophisticated professional enablers operating across borders;
  • appoint a lead person and agency in the jurisdiction with responsibility for overseeing the implementation of the professional enablers’ strategy, review its effectiveness, and devise further changes as necessary.

Robert Carington is Policy Executive at STEP

STEP attends FATF meeting to discuss beneficial ownership regime

Emily Deane TEPSTEP attended a virtual meeting held by the Financial Action Task Force (FATF) on 18 March to discuss potential amendments to FATF Standards Recommendation 24 and its implementation. FATF announced its intention to review this area, which may lead to a comprehensive overhaul of the system of beneficial ownership (BO), at a private sector consultative forum in November 2020.

The meeting aimed to garner additional views on the key proposals for amendment to Recommendation 24 from Designated Non-Financial Business and Professions (DNFBPs) which include lawyers, trust and company service providers, notaries and other independent legal professionals.

The principal issues for discussion included:

  • The verification of BO information provided to the registry and whether a DNFBP could hold the information instead.
  • Whether DNFBPs have sufficient access to the BO registries in order to identify and verify the relevant beneficial ownership information.
  • Whether physical paper bearer shares are still necessary?
  • How can the sector define and adequately control nominee arrangements?
  • How could the process of identifying beneficial ownership be improved?

STEP noted the issue that the application of the rules around beneficial ownership is complex, which can create an ambiguous outcome due to confusion around the identification of natural persons. This confusion can lead to the rules not being applied correctly, resulting in inaccurate information being held. Licensed third parties which are obliged to hold information, such as trust companies, have a more rigorous process of identification and this could be beneficial to adopt.

STEP suggested that FATF target the accuracy of the information held, its effectiveness, and how often it is collected. It also suggested it would be preferable for jurisdictions to have multiple options, rather than the current highly prescriptive rules of identification, to ensure the accuracy of the information collected and verified. The overarching objective for review should be to strengthen the measures in place, and mitigate the obstacles to transparency and risks of misuse.

FATF confirms that it will continue to consult with the private sector and will publish a full consultation on written proposals in June. STEP will continue to keep members apprised of these developments in due course.

Emily Deane TEP, STEP Technical Counsel

Trusts and AML-CFT registers of beneficial owners: I’m a trustee, do I need to register somewhere?

Robert CaringtonOn 11 February, STEP Europe held a webinar to examine how various jurisdictions have transposed the Fifth Anti-Money Laundering Directive (5AMLD), and particularly how those Member States have chosen to define a business relationship.

The panel included Stéphanie Auferil TEP from France; Dr Petra Camilleri from Malta; Aileen Keogan TEP from Ireland; Filippo Noseda TEP from the UK; Paolo Panico TEP from Luxembourg; and Nicola Saccardo TEP from Italy; with Dr Anthony Cremona TEP moderating. The event was sponsored by IQEQ.

Many trustees based in the EU, and other jurisdictions with regulations similar to the EU’s central Register of Beneficial Ownership (RBO), are familiar with the need to register trusts. The details are sent to the competent authority and disclose information on all persons who fall within the definition of ‘beneficiary’, with respect to trusts in the appropriate RBO form. However, non-EU-based trustees are less likely to be familiar with the new requirement to also have the trust registered when the trustee enters into a business relationship in the EU, whilst in a number of countries EU based trustees have already been required to register (France).

The panel members each explained how their own countries have implemented the following provision from the Official Journal of the European Union regarding article 31, as covered in this discussion document (pdf).

Some of the key updates per jurisdiction were:

Ireland: It still has not implemented 5AMLD as the legislation does not yet fully transpose 5AMLD. It is difficult to see how it would work in the country, due to the number of trusts to be found in many aspects of society (house purchases, pensions and to protect the vulnerable) and how the directive would affect daily life. Ireland has already removed statutory trusts, unit trusts and pension trusts from the definition of an express trust, though further clarification is needed. However as yet there has been no carve-out for trusts known already to be of minimum risk, such as those for the vulnerable and charities.

Italy: The RBO of trusts is not yet operative and the legislation refers to implementing provisions which have been made available in draft for public consultation, but not yet issued. Under the legislation, trusts have an obligation to register non-EU trustees either for a business relationship under the EU directive, or if under Italian law, trusts have tax consequences pursuant to Article 73 of the Income Tax Code. The draft implementing provisions are being considered and will cover both resident trusts and non-resident trusts with Italian source income/gains.

France: The country already had reporting obligations from 2011 for EU or non EU trustees and those with French connections (such as resident settlor or beneficiary or French situs assets). It transposed 5AMLD in February 2020 and extended reporting to non-EU trustees acquiring French real estate or entering into a business relationship in France.

Robert Carington is Policy Executive at STEP