What You Need To Know About Third Party Payments
Payments from investment accounts to persons or parties other than the named investor are called third party payments. Third party payments carry risks to the affected investors and to Foord. Director of operations and compliance DIANE BEHR sets out the law and Foord’s policy regarding third party payments.
At Foord, we believe in long-term investing and in building long-term relationships with investors. We also know that life happens: marriages break up, sometimes acrimoniously; families fall out; minor children grow up to become adults with contractual capacity; people may die without us being informed. We can never know all the circumstances of our investors’ lives no matter how long we have known them.
To safeguard investors‘ interests in their units, Foord’s policy is not to make redemption or distribution payments to third party bank accounts. In other words, Foord will only make redemption and distribution payments to a bank account in the name of the investor. We also apply this rule to family members; Foord will not pay into a bank account in the name of the investor’s spouse, child or parent.
This is common practice in the financial services industry and protects Foord and its investors. It protects investors from the risk of fraudulent redemption instructions and error in that Foord will only pay to the bank account on record and which Foord verified as belonging to the investor. The practice also protects third parties from tax and other consequences of receiving unexpected deposits.
We must also consider anti-money laundering (AML) and counter terrorist financing (CTF) legislation and regulations. While prevailing AML and CTF rules do not specifically ban third party payments, they require regulated institutions to consider the risks associated with the placement (i.e., source), layering (disguise of source) and integration (placing laundered monies back into the economy) of investor funds. Prohibiting third party payments substantially reduces AML and CTF risks. Foord’s policy on third party payments is thus in line with regulatory best practice.
Many of Foord’s investors make long-term investments for their minor children, acting as the child’s legal guardian. Often, these investments are made at birth or well before bank accounts are opened in the child’s name. The same risks and rules are at play — the investments are those of the child and Foord is obliged to safeguard the child’s interests in the units by reducing risk of fraud, unauthorised withdrawal and integration risks for anti-money laundering purposes. Redemption payments are only made into a bank account in the child’s name.
To prevent holding up the prompt payment of redemption proceeds, we encourage investors to inform Foord of changes to bank accounts or contact details as they occur. Investors changing such static information will receive a confirmation letter confirming that the change has been recorded.
Notwithstanding the prohibition on third party payments, investors may transfer units to existing or new Foord Unit Trusts investors. We allow such transfers only if the receiving investor accepts the transfer. Both investment accounts (the transferor and transferee accounts) must be in good order. Accounts are in good order if there are no outstanding monies and Foord has received all required AML and CTF documentation. This includes proof of bank account ownership, proof of identity and proof of residential address. Please consider the potential tax consequences of the transfer and consult a tax professional if needed.