19 August: The Treasury has recently clarified several grey areas relating to the obligation to report discrepancies in the People with Significant Control register.

The clarification – courtesy of a new Statutory Instrument (SI) – concerns issues surrounding the responsibilities of members under the EU’s fifth iteration of the Money Laundering Directive (5MLD), which came into force on 10 January 2020. This sought to address several gaps in the existing regime.

The SI now makes it clear that members working in an AML-regulated firm are obliged to only report discrepancies they identify in the PSC register that relate to new clients and to do this only once.

Sophie Wales, ICAEW Head of Ethics and Economic Crime, said: “ICAEW welcomes this clarification from the government, which will allow our members to apply the new requirements with both clarity and confidence following the updates to the money laundering regulations earlier this year.”

What are the obligations to report discrepancies in the People with Significant Control register?

Before establishing a business relationship with a UK company, unregistered company, LLP or Scottish limited partnership, the firm must obtain proof of their client’s registration on the People with Significant Control (PSC) register or an excerpt of the register.

From 10 March 2022, a business establishing a business relationship with a trust must obtain proof of the trust’s registration on the Trust Registration Service (TRS) if the trust is required to be registered.

If the firm identifies a discrepancy between the information that they gather while carrying out their duties under the 2017 Regulations (during client take on processes) and the information that is on the PSC register or TRS, the firm must report that discrepancy to Companies House or HMRC as applicable.

A person named on the PSC register may not be the person the firm identifies as a beneficial owner under CDD procedures, due to different definitions for a PSC and a beneficial owner.

What constitutes a discrepancy?

The purpose behind PSC discrepancy reporting is to ensure that the information on the PSC register is adequate, accurate and current. “Discrepancy” is not defined in the 2017 Money Laundering Regulations but HM Government’s interpretation of the intention is for material differences to be reported. For further information (including what constitutes a material discrepancy) see the Companies House guidance.

When should a discrepancy be reported?

A discrepancy must be reported as soon as reasonably practicable after the discrepancy is discovered. ICAEW consider that firms should normally make a report within 30 days* of identifying the discrepancy. Bulk reporting on a periodic basis is not permitted.

Firms do not have to wait for a response from Companies House or (HMRC for TRS) before taking on their clients. The decision as to whether to establish a business relationship with that entity is up to the firm, based on their usual risk-based approach. Firms should assess the relevance of any discrepancies within their CDD process. In particular, if it appears the discrepancy is intentional the firm should consider the veracity of other information received from the client.

Discrepancies only have to be reported when establishing a new business relationship. Firms do not have to review the records of existing clients or report during CDD refreshes.

A discrepancy report is not a substitute for a SAR but finding a discrepancy does not in itself require a firm to submit a SAR. The normal tests for when a SAR is required still apply – see the helpsheet on SAR reporting for more details.

Time lags in updating the registers

Companies House will investigate the discrepancy report and, in most cases, contact the company. If the information on the register is incorrect, Companies House can use a new power which allows them to remove incorrect information. They will expect the company to update the register and will undertake compliance action if this doesn’t happen.

Do overseas branches and subsidiaries have to report discrepancies on UK entities they are taking on?

Overseas branches and subsidiaries must abide by equivalent overseas regulations to the 2017 Money Laundering Regulations. As it is likely there will be no appropriate equivalent in the case of taking on UK entities, discrepancies should still be reported to Companies House or HMRC.

In instances where multiple branches or subsidiaries of the same group are taking on the same client at the same time, if feasible, the group may file one report as soon as is reasonably possible, rather than several (from each subsidiary).

How do you report a discrepancy?

The Companies House guidance details how to report a discrepancy. Firms should keep records of any reports that are made to Companies House or HMRC for a period of five years, as they would for other Client Due Diligence records.

*Please note a 30-day reporting timescale is ICAEW’s view only and has yet to be approved by HM Treasury.