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Beneficial Owners and Protectors of Trusts: A Guide to Effective Control
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As of July 31, 2023, Regulation 5AA has clarified the regulatory landscape regarding beneficial owners and protectors of trusts.
Effective Control
The concept of effective control is crucial in determining beneficial ownership. A person who has effective control over a customer or trust is deemed to be a beneficial owner. This can include individuals who have the power to make decisions that impact the entity, such as voting rights or managerial responsibilities.
- For example, Ms. T holds all the voting rights for STU Limited, while Ms. V has responsibility for managerial decisions. In this scenario, both Ms. T and Ms. V meet the definition of beneficial owners due to their effective control over the company.
Underlying Customers
The regulation also clarifies that a customer’s underlying customers are only considered beneficial owners in limited circumstances. This typically occurs when the underlying customer has ultimate ownership or control over the customer conducting the transaction.
- In practice, this means that if your customer is acting on behalf of an ultimate owner or controller, you should have already determined this person as a beneficial owner. Your AML/CTF program should include procedures to identify these individuals and ensure compliance with CDD obligations.
Acting on Behalf of a Customer
It’s essential to note that acting on behalf of a customer is not the same as being a beneficial owner. Acting on behalf of a customer refers to a person authorized to conduct transactions or activities with your reporting entity, whereas effective control implies ownership or management rights.
- For instance, an individual may have authority to sign accounts or authorize financial transactions for a customer but does not necessarily own or control the entity.
CDD Obligations
When acting on behalf of a customer, you are required to obtain and verify information about the person, including their name, date of birth, and address. This is in addition to verifying their relationship with the customer.
- If you have an existing business relationship with a customer and have previously conducted CDD, you can apply simplified CDD procedures for new persons acting on behalf of the customer.
Record Keeping
It’s crucial to maintain records of all decisions and retain CDD and relevant records in a readily auditable manner. This includes recording the rationale behind any risk-based decision made.
- You must keep these records for at least five years after an occasional transaction or activity has been completed, or a business relationship has ended (whichever is later).
Further Guidance
This guideline provides an overview of the key concepts relating to beneficial ownership and protectors of trusts. For further information and examples of how these principles apply to specific situations, refer to individual guidelines.
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By understanding the concepts of beneficial ownership and acting on behalf of a customer, reporting entities can ensure compliance with CDD obligations and mitigate risks associated with trust transactions.