Do I have to identify and verify all the beneficial owners of a trust?

I act for trustees buying a property for a trust. Do I have to identify and verify all the beneficial owners to the same standard?

Where you are instructed in relation to an existing trust, when applying customer due diligence (CDD), you must obtain and verify the identity of your client including beneficial owners where applicable.

Regulation 28(3A) of the Money Laundering Regulations 2017 states that where the customer is a legal person, trust, company, foundation or similar legal arrangement, the relevant person must:

• identify the customer, and
• take reasonable measures to understand the ownership and control structure of that legal person, trust, company, foundation or similar legal arrangement

This requirement means tracing ownership back to any ultimate beneficial owner of the entity who is a natural person.

You must then take reasonable measures to verify the identity of the beneficial owner.

‘Reasonable measures’ means risk-based, proportionate and effective in mitigation of the identified money laundering and terrorism financing risks inherent in the client or matter being undertaken.

When considering the test of reasonableness, you should consider whether you are comfortable that you would be able to demonstrate and evidence the extent to which you have sought such information and verification to your supervisory body upon request.

It should not be misinterpreted as an allowance to depart from your duty to understand the full ownership and control structure of the client.

Regulation 28(4)(a) requires a relevant person to identify the beneficial owner ‘of a client’ which is beneficially owned by another person.

Regulation 6(1) defines “the beneficial owners in relation to a trust” as the settlor, the trustees, the beneficiaries (or class of beneficiaries) and any individual who has control over the trust.

Although your client will not actually be the trust (because a trust does not have legal personality), if you advise any client in relation to a trust, the MLRs 2017 require you to understand who the trust's other beneficial owners are, as defined in regulation 6(1).

You must understand and record the identity of the (non-client) settlor, trustees, protectors, and/or beneficiaries and any person who otherwise has control of the trust, as trust beneficial owners.

Having identified the beneficial owners, the risk-based approach is key to the extent of verification that may amount to reasonable measures.

Where applicable having regard to the circumstances, you should verify the identity of the beneficial owner to the same standard as that applied to clients who are natural persons, as described in chapters 6.14 and 6.14.4 of the AML guidance for the legal sector.

See also the suggested approach to client due diligence in the addendum to the AML guidance for the legal sector.