STEP Slams New 'Fit And Proper' Test For Trustees

by Jason Gorringe, Tax-News.com, London

30 July 2007

The Society for Trust and Estate Practitioners has slammed new UK money laundering regulations published this week, arguing that the proposed 'fit and proper' test for trustees is too weak.

In a response issued to HM Treasury with regard to the new rules, STEP warned that the test would not properly protect the public.

Clive Cutbill, Chairman of the STEP England & Wales Money Laundering taskforce, explained that:

“Under the new regulations those seeking a license will not have to pass any kind of test of competence. In fact they do not need any professional qualification or experience to be regulated. Compared to what is required of other trustees in the regulated sector and judged internationally this is far too weak.”

“Regulated trustees should be required to demonstrate adequate professional qualification or relevant experience. We support a regulatory regime which protects the public and we believe those who are competent are much more likely to have the understanding and ability to carry out money laundering checks effectively.”

The new license only applies to those not already regulated.

STEP further observed that trustees who are lawyers, accountants and bankers already have a much higher fit and proper test than the new regime. It added that other jurisdictions where trusts are popular, such as Jersey, have fit and proper test for trustees which include relevant qualifications or minimum relevant experience.

The full text of the note from STEP England & Wales to HM Treasury on the subject of the fit and proper test is reproduced below:

"STEP England & Wales Committee

Comment on Fit and Proper test

STEP believes that HMT’s proposed regulation of Trust and Company service providers (TCSPs) by HMRC is weak and will not properly protect the public.

HMRC will regulate those are not currently regulated, and we believe they should do this to similar standards. However, currently the vast majority of professionals in the trust services industry (i.e. lawyers, accountants, bankers) are already regulated to a much higher standard than proposed by HMT. Crucially those regulators have their own demands in terms of competence.

However, the proposed new regulator, HMRC, will have no mandatory requirement to assess the competence of TCSP's. We believe this means that HMT’s proposed definition of “fit and proper” status is a negative test which, judged against others in the regulated sector and judged internationally, is far too weak.

Indeed this weak negative test falls far below the standards of qualification or experience expected by other trust professionals (e.g. lawyers and accountants) and common international standards of Trust and Company service providers in other popular trust jurisdictions such as Jersey and Guernsey.

What is the impact of a weak fit and proper test?

A weak fit and proper test means that the public nor the revenue will not be protected from the unqualified and inexperienced.

A weak fit and proper test will not encourage higher professional standards as new entrants to the profession will not need to be qualified or experienced to join. It means that there is a weak link in the system as there is an uneven playing field between lawyers, for example, and other TCSPs.

An appropriate fit and proper test?

We support a regulatory regime which protects the public and reinforces the fact that trust and estate practice is a profession which requires high standards of professional competence. We believe only those who are competent to act can identify risks effectively.

We believe that TCSP’s regulated by HMRC who are unable to demonstrate adequate professional qualification should be able to obtain a license only by virtue of relevant qualification or Minimum Relevant Experience (MRE). The option of being able to obtain such a license on the basis of experience rather than qualification should be limited to a transition period."

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