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Acceptance of new business (Business acceptance procedures may cover the…
Acceptance of new business
OSPs usually have written plaices and procedures covering business acceptance. These procedures are designed to ensure that there is adequate oversight of the process of accepting the business
These new business acceptance proceeders should ensure that only senior staff (usually the directors) may accept new business
Some OSPs have established a new business acceptance committee, such a committee could consist of the directors and a member of the compliance team
This approach to limiting the acceptance of new business makes it more likely than any risks involved with taking on a new client are identified at the outset of the relationship and properly evaluated and managed. This is they may be accepted, avoided, reduced or if the risk presented is outside of the OSPs risk appetite, they may decide not to accept the business
Business acceptance procedures may cover the monitoring of aspects such as
Customer due diligence requirements including the identification of the customer
Risk profiling of the customer and the business to be undertaken
An assessment of the services to be provided
Terms and conditions
Administration fees and charges
The obtaining of tax or legal advice
Formal acceptance of the business
As the new business procedures play an important part in the risk management of the OSP, it is important that they are followed. In order for the OSP to be able to demonstrate (to the regulator if required) that their business acceptance process is robust, it is important that any exceptions to the policies or procedures, particularly involving the customer due diligence are documented
In some offshore jurisdictions such as Guernsey and Jersey, the OSP procedures must be organised to facilitate a risk based approach to the obtaining of the due diligence in order to meet the regulatory requirements
New business enquiries
When the services of an offshore trust provider or a company service provider are required, a potential client may contact the OSP directly or they may be introduced to the OSP by a connected group company or by a third party intermediary (eg lawyer, accountant or tax adviser)
The OSP will undertake a process in order to obtain sufficient information from the potential client to enable it to determine whether or not it is appropriate to accept any appointment. This process could involve the following steps
Meeting the client and/or their advisors
It is good practice for OSPs to meet with potential clients and with their advisers where possible, at the outset of the business relationship
At this stage important matters such as the tax planning and structuring objectives may be discussed and high level information about the proposed structure may be obtained at this stage
Completion of an application form
The client is usually asked to complete and sign an application form which usually documents the information that was discussed at the initial meeting
May contain the following information
Information about the applicant (the client) including their full name, address, contract details, nationality, domicile and their source of funds and source of wealth and other important matters such as whether the client a politically exposed person
Details of the initial and additional assets to be placed under the control of the OSP
Details of the client's tax status including their residence and domicile
The services to be provided by the OSP
Key information to enable the entity establishment documents to be prepared, for example the type of entity required and the details of the beneficiaries (or a class of beneficiaries) of a trust or beneficial owner of a company, the purpose and proposed name of the entity
Details of the proposed law of the trust and/or preferred ursidcvtion for the incorporation of the company
Obtaining and verifying customer due diligence information
This is an extremely important and sometimes difficult task to undertake and achieve and is an ongoing process that administrators and OSPs must ensure are determined to meet their internal procedures and regulatory and statutory requirements
Reviewing of taxation or legal advice
Where the offshore structure is being set up for taxation avoidance purposes, it is best practice for OSPs to obtain a copy of the relevant tax advice
Tax avoidance involves the legitimate minimisation (or avoidance) of a taxation liability
It is important that administrators do not take a tick box approach upon the receipt of tax advice and that they do not simply file the advice and take comfort from the fact that they have received it.
When any taxation advice is receive an OSP should consider the following matters
The adequacy of the tax advice:
The advice must make sense and cover all key aspects such as client's country of residence and domicile
Is the tax advisor component in giving this type of advice?
Are they an expert in this ever changing area of expertise and do they understand the tax laws of the jurisdictions they are reporting on?
The basis of the advice:
Administrators sometimes find themselves with tax advice that outlines advantages to their client on a particular basis (for example that the client is resident or domiciled in a particular area) If it clear to the administration from their knowledge of the client that this basis is not correct, this should be questioned and addressed
Some offshore regulators are making it clear they expect firms to obtain copies of the client's advice in all but the most straight forward of cases.This cannot be treated as a tick box approach as the advice could become imperative when future transactions are undertaken
OSPs often seek legal advice in relation to structures that are multi-jurisdictional. It is unlikely that an OSP would be familiar with the laws of every jurisdiction and it is therefore wise for them to take legal advice in to ensure that entities under their control do not break any foreign laws and that any additional requirements have been considered, for example exchange controls that may restrict the outflows of money when dealing with certain jurisdictions. Legal advice is particularly important where the structure is complex, involving multiple jurisdictions or investors