Business tax – guidance

Money Laundering Regulations: apply for the fit and proper test

If your business is either a Money Service Business or a Trust or Company Service Provider you'll have to apply for a 'fit and proper' test.

Overview

You’ll have to apply for a ‘fit and proper’ test if you’re registering with HM Revenue and Customs (HMRC) under Money Laundering Regulations and your business is either a Money Service Business or a Trust or Company Service Provider.

The fit and proper test is a check to make sure that you and certain other people involved in running the business meet the requirements of the Money Laundering Regulations.

This guide explains what the test is and who has to apply for it. It tells you how to apply for the test and what happens if anyone fails it. It also explains what to do when there are changes to the personnel of your business.

The fit and proper test

The aim of the fit and proper test is to prevent unsuitable people from running a Money Service Business or a Trust or Company Service Provider. HMRC carries out these tests as part of the registration process.

HMRC uses information that it already holds and information from other sources to carry out the checks. HMRC will not register the business if any of the applicants fails to pass the test.

There’s no need to apply for a test every year but if a new person joins your business they will have to take a test if it applies to them.

Who needs to apply for the fit and proper test

When you register your Money Service Business or Trust or Company Service Provider under the Money Laundering Regulations, you and anyone who controls the business must apply for a fit and proper test as part of the application process.

You must apply for a test if you’re:

  • the person applying to register the business and you’re running the business either on your own or in partnership
  • a person who can, or will be able to, direct the business - this includes directors and shadow directors, whether they’re based in the UK or overseas
  • a ‘beneficial owner’ of the business - you’re a beneficial owner of a business if you own or control more than 25% of it
  • a ‘nominated officer’ for the business - the nominated officer for a business is the person who will act as the money laundering reporting officer

This means that you’ll have to apply for a test if you’re:

  • the sole proprietor of the business
  • a partner in the business
  • a director of the business or a nominated officer

Some trustees have to apply for a test, as do shareholders who own or control more than 25% of the shares or voting rights in the company.

Example

You’re a shareholder in a company which operates as a Money Service Business. There are 2 other shareholders and you each own an equal number of shares. You apply to register the company under the Money Laundering Regulations. All 3 of you will have to apply for a fit and proper test because you each own more than 25% of the shares in the company.

If you’re a director as well as a shareholder you’ll have to apply for a test even if you own less than 25% of the shares. This also applies to any other shareholder who is a director.

Directing a business - activities that count under Money Laundering Regulations

It will normally be obvious whether or not you effectively direct a business. If you’re directing the business you may be able to:

  • make decisions about the policies and direction of the business
  • be part of a board, or group that makes decisions about the business direction
  • make financial decisions on behalf of the business
  • be a signatory to the bank account for the business
  • decide how much credit can be given to customers
  • have significant staff management - for example you may have overall management of the business or you may direct staff on how they do their job
  • appoint and dismiss employees on behalf of the business

You can email HMRC for advice if you do any of these activities but are still not sure if you direct the business.

Completing the application form for the fit and proper test

From 1 April 2015 the charge for the fit and proper test will increase from £50 to £100.

Form MLR101 is designed to be downloaded, saved on your computer and filled in on screen. When you have finished you need to print the form, sign and date it and send it to HMRC to apply for a fit and proper test.

If you’re a non-UK resident, you’ll also need to send documents which confirm your identity and home address.

HMRC will accept documents issued by government to confirm identity, for example a valid passport or valid driving licence which may also confirm your address.

You’ll also need to send another document to confirm your home address if this is not shown on the identity document you are using. Suitable documents are:

  • current council tax demand letters or statements
  • current bank or credit/card statements (not ones printed off the internet)
  • utility bills (but not one you have printed from the internet)

You can send original documents or ‘certified’ copies. An independent professional person can certify a copy for you but they must not be a friend or relative. An independent professional person could be a:

  • family doctor
  • accountant
  • civil servant
  • teacher
  • solicitor
  • notary
  • post office branch employee or employer

They need to write on the copy document(s) that the person named in the document is the person they claim to be. The person certifying the document must also give their name and business contact details.

In some situations where HMRC receive an MLR 101 for a UK resident but cannot confirm the identity it will contact you to ask you to send documents to confirm your identity and home address.

You and anyone else in your business who is applying for a test must send their completed form to HMRC with a one-off charge of £50 for each applicant (£100 per applicant from 1 April 2015). Also include form MLR100 Application for Registration if you’re applying to register the business under the Money Laundering Regulations. Send your documents and payment to:

HMRC Anti Money Laundering Supervision
Alexander House
21 Victoria Avenue
Southend-on-Sea
SS99 1AG

How the application process works

Once HMRC has received your application for a fit and proper test, it will carry out various checks to make sure the information you’ve provided is correct. HMRC will check your information against its own records and against records kept by other regulatory authorities, government and law enforcement agencies, and commercial organisations.

If HMRC want you to answer questions about your application, you might be asked to visit one of its offices. If this happens, HMRC will write to you to tell you where to go and give you a date for the visit.

The fit and proper test is part of the registration process and HMRC will tell you within 45 days of receiving your application whether it will register your business or refuse to register it. If you need to give extra information, the deadline for giving you the decision will be extended.

If you pass the test, HMRC will continue to monitor your fit and proper status in case your circumstances change and you no longer meet the requirements of the Money Laundering Regulations.

Failure to pass the fit and proper test

You’ll fail the test if you cannot satisfy HMRC that you’re a fit and proper person with regard to the risk of money laundering or terrorist financing. HMRC will want to see evidence of your honesty and integrity and whether you’re able to understand and fulfil your obligations under the regulations.

In order to reach a decision HMRC will consider a wide range of information including, for example, whether you:

  • are being investigated or have been convicted of money laundering or other offences involving dishonesty, fraud or financial crime
  • have been disqualified from acting as a company director
  • have been subject to a confiscation order under the Proceeds of Crime Act 2002
  • have a track record of consistent non-compliance with the Money Laundering Regulations, or with the EU Payments Regulation which applies to money transmission service providers
  • have been disciplined or expelled by another supervisor or professional body for regulatory or professional failings

HMRC won’t process your application for registration if one or more of the applicants from your business fail the fit and proper test, and will write to tell you the decision. If you don’t agree with it you can appeal.

If the person who fails the test is the nominated officer, you can:

  • appoint someone else who already has fit and proper status as the nominated officer
  • choose someone else to apply for the fit and proper test

If you’re a sole proprietor and you fail the test HMRC will not register your business. You have the right to appeal against HMRC’s decision.

You can’t continue to trade if HMRC refuses to register your business, until the decision is reviewed.

Personnel changes and fit and proper status

If a new person joins your business after you have registered under the Money Laundering Regulations they might have to apply for a fit and proper test.

If the new person already has fit and proper status

A new person in your business might already have passed the fit and proper test when they worked for another Money Service Business or Trust or Company Service Provider. If they tell you that they’ve already passed the test you can ask HMRC to confirm this.

You should write to the Registration Team giving the person’s name, address, and the Money Laundering Regulations registration number of the business for which they were given fit and proper status. The Registration Team will write back and confirm whether the individual is on the list of fit and proper people.

If the person is already on the list they won’t need to reapply for fit and proper status unless their circumstances have changed in a way that may affect the test result.

If the new person doesn’t have fit and proper status

If a new person in your business needs fit and proper status but doesn’t already have it they’ll need to apply for the test in the normal way.