LMA responds to HMT consultation in relation to Transposition of the Fifth Money Laundering Directive (the "Consultation")26 June 2019
The LMA has responded to HMT's Consultation, the purpose of which was to invite views on the steps that the government should take to meet the UK’s obligation to transpose the Fifth Money Laundering Directive ("MLD 5") into national law.
The fight against money laundering and terrorist financing is of fundamental importance to the members of the LMA. The LMA strongly supports the objectives of MLD 5 and in particular the need to obtain greater transparency on issues such as beneficial ownership. However, there are certain provisions contained in MLD 5 which are likely to have an unnecessarily detrimental impact on the functioning of the primary and secondary syndicated loan market, as well as corporate loan market liquidity more generally, without resolving the issues they are purporting to address.
In particular, we noted as part of our response that MLD 5 now extends the registration obligation in respect of the beneficial ownership of trusts to all express trusts, regardless of whether they have taxable consequences (this being the position under the existing legislation). In a syndicated loan context, this means that security trustees will, going forward, be required to disclose the identity of all beneficiaries to any security trust created, register all existing trusts and also maintain the register on an ongoing basis as the underlying beneficiaries change. This will necessitate huge investment in systems, processes and manpower and will be a particular burden for those loans that are frequently traded. Finally, given that even unsecured syndicated loan agreements contain general trust and equivalent arrangements, it is likely that hundreds of thousands of trusts will need to be declared as a result of this change, despite offering no obvious benefits to competent authorities, FIUs, obliged entities or anyone else who may have a legitimate interest in such information. This is because the majority of trusts created under English law are not set up for the purpose of owning assets or the channelling of funds, but for other purposes, the rationale for which is simply to facilitate transparent transactions. This means that they are used either to hold assets on behalf of specified beneficiaries or classes of beneficiaries or hold security interests on behalf of a group of beneficiaries who have taken security over particular assets owned by a third party (usually as a condition to providing financing to that third party). They also enable such rights and interests to be transferred easily from one beneficiary to another.
Commenting specifically on the LMA's response to the Consultation, Amelia Slocombe, LMA Managing Director, said:
"Incorporating security trusts in a beneficial ownership regime will result in severe disruption to corporate and retail activities that use these structures for entirely legitimate purposes. We would therefore urge that careful consideration is given as to how they should be dealt with. Requiring full beneficial ownership disclosure of trusts that generate no taxable consequences whatsoever could also prevent authorities from being able to spot those which have been set up for illicit purposes, simply because of the number of trusts that will now need to be added to the register."
Click here for a copy of the LMA's submission.