ECSH63430 - Regulation 26 - Prohibitions and approvals

Category Heading	Description
The Law	https://www.legislation.gov.uk/uksi/2017/692/regulation/26
What it means	No person can be a BOOM of a Firm/sole prop carrying out relevant activity unless they have been approved by HMRC in the following relevant sectors: art market participant accountancy service provider estate agency business high value dealer letting agency businesses A ‘relevant firm’ is defined under Regulation 3 as any entity which is not an individual.
Purpose	This is to prevent anyone with an unspent conviction for a relevant offence (under schedule 3) being involved in the running of the business or benefiting from it.
Time Line	The approvals regime was only introduced under MLR2017.
What to establish	Has the person applied for approval with HMRC before 26 June 2018 and/or is the application for approval yet to be determined? If so, the person is able to act as a BOOM of a relevant business or sole trader while pending approval. – 26(3). Or for a letting agent or art market participant, this date would be before 10 January 2021, even if the application is still pending. -26(3)(A). Has the business ensured that no-one has acted as a BOOM unless the person has a valid approval by HMRC or has applied for approval and not yet been determined? – 26(4). An individual must not act as a relevant sole practitioner (i.e. in any other the sectors outlined above) without a valid approval by HMRC or without having applied for approval. -26(5). Has an application for approval been made either by the relevant person or by the business on behalf of the relevant person? -26(6). This application must be made as directed by HMRC – this is usually made online as part of the business/sole traders registration process. By adding a BOOM of a relevant business to the registration/application, this will then apply them for the approvals test. -26(7). The application must also contain information on the relevant persons as required by HMRC. In determining whether a relevant person can be approved, you must establish whether the person has been convicted of a relevant offence listed in Schedule 3 of MLR2017 and that the conviction is unspent in line with the Rehabilitation of Offenders Act 1974 (see list of Schedule 3 offences in further reading). If a person applying for approval does have a relevant offence, HMRC must grant the approval. HMRC may grant approval for a limited time if necessary. -26(8). If a person has been approved as a relevant person by HMRC, but the person has an unspent conviction of a schedule 3 offence, the approval is not valid. Similarly, if an approved person is subsequently convicted of a schedule 3 offence, the approval will no longer be valid. - 26(9).  If an approved person is convicted of a schedule 3 offence, the person must inform HMRC within 30 days of this conviction. The firm of which the person was approved with, must inform HMRC within 30 days of the date which it was made aware of the relevant conviction. - 26(10).  If a beneficial owner is convicted of a relevant offence, HMRC as the supervisory authority may apply to the High Court (or in Scotland the Court of Session) to order the sale of the beneficial owners’ interest in the firm. -26(11). It is a criminal offence for a person to act as a BOOM of a relevant business or act as a sole trader carrying out relevant activity without approval (i.e. being in breach of Reg26(1)). -26(12).
How to test compliance and evidence to obtain	Check all BOOMS are added to the business’ registration – Companies House can be used to view beneficial owners and officers. It may also be the case we request information from the businesses on their management and structure to establish if any additional managers require approval. Obtain PNC results which will detail any convictions. Check if any convictions are listed in schedule 3 and determine if they are spent or unspent in line with the rehabilitation periods (see rehabilitation periods in further reading). If a person has found to be acting in a relevant firm without approval/ invalid approval, a criminal referral should be considered. Be mindful of any evidence (e.g. copies of business records or correspondence) that may show a person has acted without approval (e.g. are there persons making decisions relating to AML that should be approved?).
Scenario	Checks carried out before visiting an EAB establish that a director has an unspent criminal conviction listed in Schedule 3. A caseworker in Authorisations writes to the business and asks for the individual to be removed as a director. The caseworker checks Companies House and can see that the individual has been removed and, with no other risks present, approves the application. The business breached 26(4).
Best Practice	Some parts of Schedule 3 (e.g. par.30) are more subjective and may require technical/policy advice to establish if a conviction is relevant.
AMP	No additional Best Practice.
ASP	No additional Best Practice.
EAB	No additional Best Practice.
LAB	No additional Best Practice.
HVD	No additional Best Practice.
MSB	No additional Best Practice.
TCSP	No additional Best Practice.
Further Reading	(This content has been withheld because of exemptions in the Freedom of Information Act 2000)Fit and Proper Test and HMRC Approvals Technical Guidance Schedule 3 Offences - Legislation (This content has been withheld because of exemptions in the Freedom of Information Act 2000)Schedule 3 Toolkit Tab
FAQs	If a person applying for approval has no unspent conviction listed in Schedule 3, but has a history of non-compliance/other high-risks, can the person fail approval? No, the person can only fail approval if they have an unspent Schedule 3 conviction. However, other actions could be considered such as refusing the registration for suspecting they will fail to comply with any obligations under the regulations (Reg 59 (1)(e))