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Thousands of charities to be hit with new layer of AML regs

Thousands of charities could face increased administrative bureaucracy as part of the government’s new anti-money laundering regulations, a leading lawyer in the sector is warning.

Writing for Charity Finance magazine, Lucy Rhodes, associate at Bates Wells, said the Fifth Money Laundering Directive (5MLD) could force all charitable trusts, irrespective of size, to register with the government’s new trust registration service (TRS).

The TRS rules, which currently only apply to trust that incur tax, require trustees to provide and keep up-to-date information about their beneficial owners – settlor, trustees, protector, beneficiaries and any “other natural person exercising effective control of the trust”.

There are various rights of access to data, including anyone demonstrating they have a legitimate interest in accessing it. This term is yet to be defined, but is likely to mean a person with active involvement in anti-money laundering or counter-terrorism.

Rhodes said charities are not the target of 5MLD but the legislation “offers no scope for carve-outs, exemptions or de minimis thresholds”.

She said: “It will therefore apply to all charitable trusts, irrespective of size. Thousands of small charities not currently required to register with the Charity Commission or HMRC will be hit with a new layer of regulation.

“Incorporated charities may also be affected. When a donor makes a donation to charity for particular charitable purposes, a charitable trust is often created. If restricted and endowment funds held on trust are caught by the new requirement, very many charities will be affected.

“The hope is that the Treasury, which concluded a consultation in June, will listen to views expressed by the charity sector and find a way to minimise the impact before transposition into UK law by the 10 January 2020 deadline.”

Rhodes said possible solutions to the problem could include incorporating TRS within the existing regulatory framework for charities.

She suggested reopening abandoned proposals for a joint Charity Commission and HMRC registration portal, providing a single registration mechanism for charities with multiple restricted funds.

In addition, she called for the government to draw up guidance on how the requirement will affect charities.