The whole issue of what is involved in being a “trust and company service provider” (‘TCSP’) has been receiving much more attention from the SRA of late. Any failure to get to grips with this relatively obscure aspect of law firms’ obligations to comply with the Money Laundering Regulations 2017 (‘MLR’, as amended) could result in firms of all sizes and most profiles providing advice and services in breach of the relevant provisions, and so therefore illegally.
This suggests that the conduct of a health check on this topic is a good step for Managing Partners and Money Laundering Reporting or Compliance Officers to take, and this in turn should help to ensure that the firm is compliant with the SRA’s expectations of them as part of their supervisory responsibilities to HM Treasury in this regard.
What is a TCSP?
The definition of what amounts to a TCSP will be found within the MLR at r.12(2), and covers both the formation of companies and acting, or arranging for others to act, as a director or secretary of a company, or as a partner in a partnership, and also providing registered office or business address facilities. Likewise, the term includes acting or arranging for someone else to act as a trustee of an express trust or similar arrangement or as a nominee shareholder for an individual with shares in a public company. The definition is therefore wide enough to cover any firms providing corporate formation services and most that are involved in private client work also.
At one point, TCSP status was seen to be relevant only to professionals subject to the MLR, but who did not have the status of being a lawyer or accountant. Now, however, the view is increasingly expressed that those within the regulated sector, through their professional status, must also meet the risks of providing this particular form of their services to clients. A clear warning was contained in a report following one of the SRA’s thematic reviews into the controls in place which concluded that “a significant minority are not doing enough, with some (firms) falling seriously short”.
Do we need to be registered as a TCSP?
For those providing non-contentious services such as conveyancing or private client work, the problem may well be that they have not notified the SRA that they are also a TCSP, in which case the regulator will not have passed this information over to the HMRC. Furthermore, and to the apparent frustration of the SRA as well, HMRC has for reasons that remain unclear chosen to make the register unavailable for public inspection. This may well mean that despite being regulated by the SRA for its more mainstream legal services, the firm may nonetheless be operating illegally as a TCSP through not having been included on that HMRC register. This will need to be corrected by submitting a duly completed FA10b submitted to the SRA, having ticked box 2.6 in addition to any other existing notifications of work types that are covered.
As to the guidance then required on the duties and responsibilities of being a TCSP, this will be found at part 2B of the Legal Sector Affinity Group AML Guidance Note from January of this year. There is also a long list of risk factors for TCSP work to be found at para 18.7 at the end of the very lengthy main Legal Sector Affinity Group Guidance Note dealing with the wider subject of AML controls in general. The risk factors that apply are too numerous to list here, but all have in common the need for a firm creating a company to be wary of why it is being formed, who is involved as a beneficial owner by way of shareholding or as the ultimate beneficial owner, and to question any element of the instructions that is unclear and so requires some form of explanation from the client. Just as importantly, of course, is to ensure that those undertaking such tasks within the firm make a careful note of their concerns, any requests made of the client for more information, and then any response received.
A related concern is that often a firm will be instructed to assist by creating a new company but will then have no continuing involvement in it. Here the SRA do accept that the firm’s obligations under the regulations will cease once the entity is formed, but they also suggest that that for as long as the firm remains involved they should consider who will manage and control the entity going forward. This will include issues such as who any ultimate beneficial owner may be, and also the proposed activities and jurisdictions that will be involved.
In summary, all firms must now see TCSP services as being much more than a quasi-administrative service, and instead services that have very real AML risk responsibilities attached them.
The SRA has also warned that although this may be a relatively minor part of the work performed by law firms compared to other providers, the fact that it may well then be combined with other related services – conveyancing and corporate transactions in particular – does increase the risks of unwitting involvement in laundering activities by law firms.
Infolegal subscribers can find out more about TCSP requirements by going to Factsheet 38 – Law Firms’ Responsibilities as Trust and Company Service Providers – on the Infolegal Compliance Hub.