Written by Petra Camilleri, Conduct Supervision, MFSA
The MFSA is the competent authority entrusted with the setting up and maintenance of the Trusts Beneficial Ownership Register. The requirement for EU Member States to have such a Register in place originally emanated from Article 31 of Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (more commonly known as the “4th AML Directive”). This Directive, as the name implies, is aimed at ensuring that EU Member States cater for specific legislative provisions and implement effective measures targeting the prevention of money laundering or terrorist financing.
Central Registers of beneficial ownership information of legal entities (such as companies) and other legal arrangements such as trusts are tools which the Directive introduced. The aim is to enhance transparency to combat the misuse of legal entities and legal arrangements such as trusts. The provisions of Article 31 of the 4th AML Directive were transposed into local legislation by means of Legal Notice 373 of 2017. Said Legal Notice promulgated the Trusts and Trustees Act (Register of Beneficial Owners) Regulations, 2017 (“the Regulations”), which came into force on 1 January 2018.
In July 2018, the European Union published the 5th AML Directive, which amends the above-mentioned 4th AML Directive. Member States were required to transpose the said amendments by January 2020. The said amendments also had a bearing on the provisions relating to the Trusts Beneficial Ownership Register. Therefore, on 27 February 2020, the MFSA published a Circular wherein it informed the public of the legislative amendments to the Trusts and Trustees Act (Register of Beneficial Owners) Regulations. Said amendments were introduced by virtue of Legal Notice 27 of 2020 to transpose the requirements emanating from the 5th AML Directive, as applicable to trustees and the Register of Beneficial Owners of Trusts. These amendments entered into force with effect from 1 January 2020.
Increased Reporting Obligations for Trusts
In terms of previous legislation, licensed trustees in Malta were only required to report the beneficial ownership information (as defined in the Regulations) of those trusts which generated tax consequences. One of the most important changes brought about by these legislative amendments contemplates that the reporting of beneficial ownership information shall now apply to all trusts under the administration of a licensed trustee in Malta. This is irrespective of whether the trust generates tax consequences or otherwise. This has the effect of making the Trusts Beneficial Ownership Register more comprehensive, thus further promoting the transparency of such structures in Malta, and also providing a more level playing field.
In this respect, any new trust for which a trustee is appointed to act as such after 1 January 2020, is required to have its beneficial ownership information reported within 14 days of the said appointment. On the other hand, the beneficial ownership information of any existing trusts for which the trustee was appointed to act as such prior to 1 January 2020, is to be reported by not later than 30 June 2020. This is in line with the terms of the six-month transitory period from the coming into force of the amended Regulations, granted by law.
The reporting requirements will also apply to any trustee of a trust established outside the EU if such a trustee enters into a business relationship or acquires real estate on behalf of the trust in Malta. This requirement is a result of the EU’s efforts to discourage trusts being set up outside of the EU and thus evading obligations relating to reporting of beneficial ownership. Such actions would hinder the transparency objectives which the EU wants to achieve, whilst also creating an uneven playing field.
Extended Access Rights
Access rights have also been extended under the new legal framework. Any natural or legal person who, upon a written request to the MFSA, can demonstrate a legitimate interest in the trust, will be granted access to the Trusts Register.
Moreover, any natural or legal person who submits a written request to the Authority in connection with a trust which holds or owns a controlling interest in any corporate or other legal entity, through direct or indirect ownership, in Malta or any other EU member state, will also be entitled to access the beneficial ownership information of that specific trust. This is also applicable for entities which have bearer shareholding or other means of control, other than corporate or legal entities (such as companies, associations or foundations).
The new access rights are an addition to the ones already existing under the previous legislation, namely those of unfettered access to the beneficial ownership information of all reported trusts for competent authorities and to subject persons for the purposes of carrying out due diligence on a particular trust.
In this respect, it is important to highlight that a request for access to a particular trust’s beneficial ownership information based on a claim of legitimate interest will be assessed and determined on a case by case basis by the MFSA. The requesting party would also be expected to prove that the interest specifically and solely relates to, and will contribute to, the prevention, detection and combating of money laundering or the associated predicate offences or the financing of terrorism. Interest shall also be justified on the basis of previous activities and a proven track record of actions in that field, by means of relevant documentary evidence.
Moreover, the legislation also provides for an appeal mechanism to the Court of Appeal for applicants who feel aggrieved by a decision of the MFSA denying access, in full or in part, to the beneficial ownership information requested on the basis of legitimate interest.
Whilst the register of beneficial owners of trusts in Malta has been in place and fully populated with the beneficial ownership information of trusts which generate tax consequences since July 2018, through the transposition of the relevant provisions of the 5th AML Directive which have a bearing on this register, the MFSA has embarked on the next phase of this project to reaffirm Malta’s commitment to promoting transparency with a view to combating the misuse of legal arrangements such as trusts, for money laundering and terrorism financing purposes.
In order to grasp a good understanding of their obligations, all trustees are therefore encouraged to undertake a comprehensive reading of the amended legislation as well as the Frequently Asked Questions which are available on the MFSA website. The FAQs are also currently in the process of being revised to provide further guidance in the light of the introduced amendments.
With the cooperation of all stakeholders involved, the Trusts Beneficial Ownership Register will be fully populated with the beneficial ownership information of all trusts being administered by trustees in Malta by the end of June 2020. This will result in a more efficient tool for transparency purposes, particularly for all competent authorities which have the function to prevent or combat money laundering or terrorism financing, but also for other parties who are entitled to access such information within the parameters permitted by law.
 Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (hereinafter referred to as the “5th AMLD”), and amending Directives 2009/138/EC and 2013/36/EU.