TRSM70020 - Discrepancy reporting: contents: Business Relationships and ongoing monitoring

Business Relationship (see TRSM24010) means a business, professional or commercial relationship between Relevant Persons (see TRSM24020) and a customer, which:

  • arises out of the business of Relevant Persons, and
  • is expected by Relevant Persons, at the time when contact is established, to have an element of duration.

Relevant Persons must be aware of their obligations to report material discrepancies which arise under two distinct scenarios: firstly when establishing a Business Relationship, and secondly when monitoring an existing Business Relationship.

The guidance provided here is not exhaustive as the nature of what construes a Business Relationship may vary between professions. Relevant Persons are advised to consider the advice of their supervising body, if appropriate, in conjunction with HMRC guidance.

Establishing a Business Relationship

Relevant Persons may be approached by trustees or agents acting on behalf of a trust, who require them to carry out certain activities pertaining to that trust.

Where this would require the establishment of a Business Relationship between the trustee/agent and the Relevant Person, Regulation 30A of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended) (the MLRs) require that Relevant Persons must check whether there are any material discrepancies (see TRSM70050) on the excerpt of the register (see TRSM70040) before establishing that Business Relationship.

When considering whether a Business Relationship is being established, Relevant Persons should consider the following:

  • does the customer intend to engage Relevant Persons to carry out a service on their behalf?
  • is the relationship between the Relevant Persons and the customer likely to have an element of duration or is this a ‘one off, short lived’ transaction?
  • is this an existing Business Relationship?

Does the customer intend to engage Relevant Persons to carry out a service on their behalf?

The requirement to check the excerpt of the register and report any material discrepancies (see TRSM70030) applies where the customer and the Relevant Persons intend to establish a Business Relationship.

Relevant Persons may regularly contact potential clients to market their services and may acquire information for the purpose of communication and/or providing estimates or costs etc. This marketing activity would not constitute the establishment of a Business Relationship.

Example

Carlos is the lead trustee for a trust. He contacts a firm of solicitors as he wishes to engage them to handle the trust’s business and has agreed to their terms and conditions. The trust has had no previous dealing with this firm of solicitors.

In this example the trustee wishes to establish a Business Relationship with the firm of solicitors which is not an existing Business Relationship.

Example

Terry is the lead trustee for a trust. He contacts a financial advisor and asks for a quote for handling the trust’s business. He gets a quote but decides not to proceed.

In this example the trustee and the financial advisor have not established a Business Relationship.

Is the relationship between the Relevant Persons and the customer likely to have an element of duration or is this a ‘one off, short lived’ transaction?

If a trust requires a range of services or a service which will be required more than once, it is reasonable to conclude that the relationship will have an element of duration. This means that Relevant Persons will need to obtain and check the excerpt of the register for material discrepancies.

Relevant Persons may need to make a judgement regarding whether something is a ‘one off’ transaction or whether a Business Relationship will be established. Consideration should be given to the complexity, range of services and timescales involved.

If Relevant Persons provide the following services to a trust, this will constitute a Business Relationship regardless of actual duration or whether any of the transactions could be regarded as a ‘one off’:

  • forming a firm
  • acting, or arranging for another person to act, as a director or secretary of a company; a partner of a partnership; or in a similar capacity in relation to other legal persons
  • acting, or arranging for another person to act, as a trustee of an express trust or similar legal arrangement; or a nominee shareholder for a person other than a company whose securities are listed on a regulated market
  • an estate agent entering into a Business Relationship with a purchaser (as well as with a seller), at the point when the purchaser's offer is accepted by the seller

Example

Avery has asked A.N. OTHER trust service providers to provide advice on a simple matter regarding a trust of which she is a trustee. The matter was quickly resolved following a meeting with a an advisor. Avery has not engaged the trust service providers to carry out any further services and has indicated that further services will not be required.

In this example, there is no reasonable expectation that there will be any element of duration or ongoing provision of services. A Business Relationship has not been established.

Example

Alistair requires Thomann Accounting Ltd to assist his trust with a restructure of its assets. The work may involve the sale and acquisition of assets, production of reports for the trustees and communications with many beneficiaries. This project will take several weeks. The trust does not require any further services from the accountants.

In this example it is reasonable to assume that this project will require several transactions and a range of services to be provided and that there will be an element of duration. Therefore, this would not qualify as a ‘one off’ transaction and a Business Relationship has been established.

Is this an existing Business Relationship?

A Business Relationship with the trustees of a trust will be considered an existing Business Relationship if:

  • the Relevant Person is already engaged in a business relationship to undertake business, professional and commercial activities on behalf of the trust in question; and
  • there is a reasonable expectation that those activities will continue in the future.

Where a Relevant Person has previously provided their services for a ‘one-off’ transaction, any further transactions with the same trust will constitute the formation of a Business Relationship.

Where a Relevant Person had a previous Business Relationship with a trust, but that relationship has not been ongoing, perhaps because the trust engaged other Relevant Persons to carry out their work, then consideration should be given to whether any further engagement should be a ‘new Business Relationship’. Relevant Persons should consider the risk profile of the trust and when the excerpt from the register was last checked as to whether discrepancy reporting checks are appropriate.

Example

Eleanor has been a long-standing client of Rumpole solicitors on a personal basis, she is also a trustee of Aquitaine Trust. Eleanor’s previous Business Relationship with this firm of solicitors was not related to the Aquitaine Trust.

Acting in her capacity as a trustee she has now instructed Rumpole solicitors to manage the Aquitaine Trust’s legal and financial affairs.

As Eleanor’s previous relationship with Rumpole Solicitors concerned her personal affairs, this relationship is not relevant to determining whether an existing relationship exists between Rumpole Solicitors and the trustees of the Aquitane Trust. As Rumpole Solicitors are now acting on the trust’s behalf, the solicitors are now establishing a new Business Relationship with the trust and should carry out discrepancy checks.

Example

Avery has returned several weeks after receiving ‘one-off’ advice described previously and now wishes A.N. OTHER trust service providers to provide further advice.

A.N. OTHER trust service provider’s relationship with Avery is no longer a one-off transaction and indicates that there is an element of duration. A Business Relationship has now been established and discrepancy checks are required.

Ongoing monitoring

The MLRs require Relevant Persons to carry out ongoing monitoring of a Business Relationship with a registrable trust, including:

  • scrutiny of transactions to ensure that they are consistent with the Relevant Person's knowledge of the customer and the trust's business
  • undertaking reviews of existing records and keeping relevant information up to date

It is a requirement of the MLRs that when Relevant Persons undertake ongoing monitoring that discrepancy checks should be carried out in line with this process.

Timing of ongoing monitoring and discrepancy checks

Discrepancy checks should be included in line with ongoing monitoring under the following events:

  • any event that would trigger enhanced due diligence checks under regulation 33 of the MLRs
  • any change, or reasonable belief, that there has been a change in beneficial ownership including to or within classes of beneficiaries.
  • any point where a registrable trust has not previously been subject to discrepancy checks by that Relevant Person

Relevant Persons should take a risk-based approach to applying discrepancy checks for all other Customer Due Diligence procedures.

Example

Peter works for Pan Trust Services Ltd. Their client of several years, Hook Trust, distributes small value bursaries to orphans in the UK. The business of the trust normally involves several transactions a year. The risk assessment for this trust is low. In this case it would be appropriate to include discrepancy checks in line with ongoing monitoring on a periodic basis.

Example

Peter is carrying out ongoing monitoring when they notice that Hook trust has now authorised several large cash transactions which are not consistent with their usual practices. This unusual activity triggers Pan Trust Service Ltd.’s Enhanced Customer Due Diligence procedures: it would now be appropriate to carry out discrepancy checks.

Example

Pan Trust Services have a risk-based approach to ongoing monitoring. During their review of a low-risk trust, they discover that this trust has not previously has not been subject to any discrepancy checks. Pan contacts the trustees to organise a review of the Proof of Registration.