MLR3C10450 - Trust or Company Service Providers (TCSPS): Compliance Checks at a Company Formation Agent

The formation of a company for a fee of around £15 - £75 as appears to be the norm is a one off transaction below 15,000 euros. Providing that no further services are required which would constitute the establishing of a business relationship with the client, the verification of the customer’s identity is not required unless the business suspects money laundering activity.

A customer who has carried out a one-off transaction might return to carry out further transactions. The business needs to have in place a system so that it can identify customers who carry out repeat business and to monitor the frequency of it. In these circumstances, the formation agent needs to make an assessment of whether the relationship with the client has become an on-going business relationship. The carrying out of two transactions with the same client is not sufficient to say that a business relationship has been established. There must be an expectation that the client will continue to make use of the services of the formation agent in the future for a business relationship to exist.

Where a business relationship is established the formation agent must carry out appropriate customer due diligence measures as follows:

  • verify the identity of the customer
  • verify the identity of all directors and any other shareholders having more than 25% of the company’s shares
  • get details of the nature of the company’s business
  • get an explanation of the reason for the number of companies being formed.

As the business is likely to be conducted on a non face to face basis, the formation agent should carry out enhanced customer due diligence to compensate for the higher risk.

As part of its general procedures a formation agent should have in place measures to identify one-off transactions that have suspicious features. These include;

  • formation requests being made from the same address but with different customer details
  • requests to form offshore companies
  • any of the circumstances described in MLR3C10445

Company formation agents tend to be businesses that employ staff. Adequate training in anti money laundering procedures should be in place.