TRSM23100 - Types of trust that need to be registered: contents: excluded express trusts: contents: Financial and capital markets

Trusts arising in finance markets infrastructure

Financial markets infrastructure refers to the institutions responsible for providing clearing, settlement and recording of monetary and other financial transactions. These include central counterparties, central securities settlement systems, and payment systems.

Certain express trusts which assist in the smooth operation of finance markets infrastructure are excluded from registration by Sch3A(10) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 when they meet the requirements below.

The trust must arise in one of the following circumstances:

Trusts to limit systemic, insolvency and other risks arising from participants’ default in the financial markets:

The trust must be created under, or for the purpose of:

  • the ‘default arrangement’ of a ‘designated system’, or
  • the ‘default rules’ of a ‘recognised body’, or
  • any action or proceeding taken by or for a ‘designated system’ under ‘default arrangements’ or 'recognised body' under ‘default rules’

‘Default arrangements’, ‘designated system’ and ‘participant’ have the meanings given in regulation 2(1) of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999.

‘Default rules’ has the meaning given in s188 of the Companies Act 1989.

Trusts to evidence and protect the interests of holders of foreign securities:

The trust relates to the creation of a beneficial interest in securities belonging to a person whose name and address are maintained on a ‘register of securities’ (see regulation 3(1) of the Uncertificated Securities Regulations 2001(3) for meaning).

Trusts to segregate client assets from those of a segregating entity, including central counter-parties and central securities depositaries:

The trust must be created by or for a ‘segregating entity’ for the purpose of protecting sums or assets belonging to the ‘segregating entity’s’ clients, or for the purpose of complying with a legal obligation to safeguard and segregate sums or assets belonging to the ‘segregating entity’s’ clients or to keep separate client records and accounts.

A segregating entity means:

  • an authorised person,
  • a clearing member of a recognised central counterparty,
  • a participant in a designated system,
  • a designated system, or
  • a recognised body.

‘Clearing member’ has the meaning given in s190(1) of the Companies Act 1989.

‘Recognised body’ and ‘recognised central counterparty’ have the meanings given in section 313 of FSMA(6).

Trusts in relation to activities on the capital markets

Many capital markets activities use trusts to increase market confidence in the activity, permit ease of trading, protect security or collateral interests and manage risk.

Certain express trusts created in the capital markets context are excluded from registration by Sch3A(13) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 when they meet the conditions below.

The activity being carried out must be one of the following activities as set out in Schedule 2 of the Money Laundering Regulations:

  • Lending, including inter alia: consumer credit, credit agreements relating to immovable property, factoring, with or without recourse, financing of commercial transactions (including forfeiting)
  • Financial leasing
  • Guarantees and commitments
  • Trading for own account or for account of customers in: (a) money market instruments (cheques, bills, certificates of deposit, etc.), (b) foreign exchange, (c) financial futures and options, (d) exchange and interest-rate instruments or (e) transferable securities
  • Participation in securities issues and the provision of services relating to such issues

The trust must be created for the purpose of enabling or facilitating the activity, or for protecting or enforcing rights in relation to that activity, and the use of the trust must be incidental to the principal purpose of the activity.

In addition, one or more of the participants to the activity must be a relevant supervised person, and the trust structure must be incidental to the principal purpose of the activity.

What is a ‘relevant supervised person’?

A relevant supervised person is defined at Sch3A(24) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 as:

  • a UK relevant person – see definition at TRSM24020, or
  • a person who is subject to requirements in national legislation having an equivalent effect to those laid down in the Fourth Money Laundering Directive (4MLD) on an ‘obliged entity’ (as defined in 4MLD). Such a person is also supervised for compliance with those requirements in a manner equivalent to section 2 of Chapter VI of 4MLD.