Key Information for Establishing and Administering Trusts
Question
According to the Financial Action Task Force, as part of their risk assessment, which are important data and information that a Trust and Company Service Provider must understand when establishing and administering a trust? (Choose two.)
Answers
Explanations
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As per the Financial Action Task Force (FATF), Trust and Company Service Providers (TCSPs) are required to conduct risk assessments when establishing and administering trusts. In this regard, the TCSP must understand certain important data and information related to the trust. Two of the most important considerations for TCSPs when establishing and administering trusts are:
A. The source of funds in the structure: TCSPs should understand the origin of funds used to establish the trust. The source of funds could indicate the potential risk for money laundering or terrorist financing. The TCSPs should assess whether the source of funds is from legitimate sources or if there are any red flags that indicate a higher risk of illicit activity.
B. The general purpose behind the structure: TCSPs should also understand the overall purpose of the trust structure. This could include understanding the assets held by the trust, the beneficiaries, and the intended use of the trust. Understanding the purpose behind the structure is crucial to assessing the potential risk for illicit activity, such as tax evasion or money laundering.
C. The responsibility and authority in the structure: Understanding the roles and responsibilities of individuals involved in the trust structure, such as trustees, settlors, beneficiaries, protectors, and other stakeholders, is also important for risk assessment. It helps to identify potential vulnerabilities that could be exploited for illicit activity.
D. The management structure of the trust: Understanding the management structure of the trust, such as the identity of the trustees and their experience, is also important for assessing the risk of illicit activity.
E. The general nature of business of the trust: Finally, understanding the general nature of the business conducted by the trust, such as the types of assets held or the industries in which the trust operates, is also important for assessing the potential risks for money laundering or terrorist financing.
In summary, when establishing and administering trusts, TCSPs must understand important data and information related to the source of funds in the structure, the general purpose behind the structure, the responsibility and authority in the structure, the management structure of the trust, and the general nature of the trust's business.
