Why Compliance represents more than a burden


Who in their right mind would be a professional trustee?  Given our chosen vocation, this may seem an odd question, but it is relevant when considering the headwinds the industry has faced in recent years, and is likely to face in the future.  However, if we embrace changes and recognise them as being for the benefits of clients, then the increased costs will be easier to swallow.

The recent tsunami of legislation enacted or pending implementation (at both a national and international level) has been expensive and time-consuming for trustees to act on.  While new legislation and regulatory changes have required us, in some instances, to adapt our systems and procedures, the benefit of being located in a well-regulated jurisdiction is that we have not usually had to implement them from scratch.

Different political agents around the globe have led to a plethora of changes, mostly driven by the need for greater tax collection and an understanding of where and how wealth is held. The financial services industry is now very familiar with the impact and application of the Foreign Account Tax Compliance Act and the Common Reporting Standard (CRS).

Trustees who work with the UK must address the requirements under the UK trust register.  They will need to respond to Her Majesty’s Revenue & Customs’ new ‘requirement to correct’ rules in instances of oversights or inadvertent transgressions that have resulted in the under-reporting of UK tax; and reform internal procedures to meet the requirements of the UK’s corporate criminal offence of failure to prevent the facilitation of tax evasion.  Similar trends in enforcement are being seen in other countries and are unlikely to abate in the coming years.

With sharing of information between nations, and particularly the adoption of the CRS by more than 100 countries, the likelihood of tax evasion or aggressive tax avoidance being identified and rightfully punished is higher than ever.

The role of the trustee has therefore shifted from confirming tax compliance to assisting clients to remain compliant with an ever-evolving tax landscape.  As most trustees do not provide legal and tax advice, a strong alliance is required with the client’s professional advisors. Working together is in the best interests of the client, and this collaboration will also help the trustee ensure that they are, at all times, fulfilling their own regulatory, fiduciary and reporting obligations.  This strengthens the position of all concerned.

The EU General Data Protection Regulation (GDPR) places a similar burden on trust businesses.  It will force our industry, which has historically been primarily paper-based, to become almost wholly electronic.  If one considers the resulting investment in IT, cybersecurity and data storage, the costs are significant.  Additionally, this may lead to technological advances whereby the business can extrapolate information in a more efficient manner when carrying out its day-to-day duties, in turn meeting many of the reporting demands imposed on trustees and clients.

The shift to risk-based supervision of trustees is also a development we welcome. To date, trustees have been focused on compliance with regulatory requirements, with the risk that the commerciality of a relationship may be overlooked.  The Jersey National Risk Assessment and the Jersey Financial Services Commission’s risk-based data collection review will prompt businesses to identify and focus on business risk.

Understanding risk and its mitigation is not new for trustees, but better risk reporting can only enhance the decision-making of directors in the formulation of business strategy and performance.  This should comfort clients, as such measures should reduce the potential for a ‘bad apple’ client to damage the reputation of their trustee and/or the jurisdiction they select.

So, while the implementation of multiple changes present challenges, the merits are clear.  Competing deadlines mean a need to insource or outsource the changes to policies and procedures quickly, as well as to grow the infrastructure and population of databases to meet reporting requirements.  However, with meticulous project management, internal communication and thorough testing, the implementation should be smooth, enabling companies to properly benefit and remain competitive.

If businesses fully embrace this and pass the benefits on to clients, they will have the opportunity to lead the market.

 

Published in STEP Journal, June 2018

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Client Services Director | Jersey Board Member
T: + 44 (0) 1534 512 588
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Managing Director Jersey | Board Member
T: + 44 (0) 1534 512 553

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