Proposal - Consultation Paper on Enhancing the Regulation and Supervision of Trust Business

Scope

20. The proposed Code will cover general principles and practical standards to govern the business conduct of companies that conduct trust business (collectively referred to as “trustees” or “trust companies” for the purposes of this consultation paper) in Hong Kong, unless otherwise specified. For the purposes of this consultation paper, a “company” refers to an individual carrying on business as a sole proprietor; a partnership; or a corporation.

The collective term “trustee” will capture a relevant party by whatever name called that performs the functions of a trustee under the proposed scope of the Code.

21. The proposed Code will not include trust-specific prudential requirements, as a trustee may already be subject to the prudential requirements applicable to it as an AI, or other regulated financial entity, which may vary depending on the other types of businesses also conducted by the trustee.

22. The proposed Code will not include anti-money laundering (“AML”) or counter-financing of terrorism (“CFT”) requirements, which are already set out in the applicable statutory and regulatory requirements including the AMLO.

23. The proposed Code will not have the force of law, and trustees should observe applicable statutory requirements and other regulatory requirements as relevant to their trust and other business, including but not limited to other conduct requirements, prudential requirements, and AML/CFT requirements. A set of the proposed Code is in Annex 2.

Applicability

24. It is proposed that the Code will apply to all AIs that conduct trust business in Hong Kong. Locally incorporated AIs with subsidiaries that conduct trust business in Hong Kong (“AI subsidiaries”) should also ensure the business conduct, practices and controls of such subsidiaries are in line with the proposed Code. To effect this, it is proposed that the HKMA issue a Supervisory Policy Manual (“SPM”) module in the form of a statutory guideline under section 7(3) of the BO which will include the proposed Code.

25. For better protection of client assets, we also propose that other trustees that conduct trust business in Hong Kong are encouraged to adopt the proposed Code to the extent applicable.

26. In the context of the proposed Code, a “trust” refers to an obligation imposed on a person to hold or control and administer assets for the benefit of others

(i.e. the beneficiaries) or for a specified purpose (e.g. charitable purpose, wills or estate planning).

27. “Trust business” refers to provision of the following services by a trustee: (i) setting up a trust; (ii) acting as trustee for a trust; (iii) arranging for any person to act as trustee for a trust; (iv) managing the assets held on trust;

(v) administration services for a trust; and/or (vi) eventual transfer of assets to beneficiaries. In other words, it is not confined to services involving fiduciary duties.

28. “Relevant staff” refers to staff engaged by a trustee to assist in the provision of trust business (including customer-facing staff, operations staff, and supervisors of such staff), other than those solely acting as an accountant for the overall book-keeping at the corporate level, general secretarial support or information technology support at the corporate level.

29. Where an AI or AI subsidiary does not provide its trust service but may merely introduce or refer another trustee to its customers for provision of trust services, the AI or AI subsidiary is not required to observe the proposed Code. However, the proposed SPM module will specify that such AI or AI subsidiary should observe the following general principles for protecting customers:

(a) The AI or AI subsidiary should perform proper due diligence on the trustee to be introduced or referred to its customers, taking into account whether the trustee follows the proposed Code, and other factors such as track record, reputation and standing, financial soundness, operational capability and capacity, and relevant internal controls and practices;

(b) In the case of an introduced or referred trustee that operates outside Hong Kong, due diligence by the AI or AI subsidiary should also take into account any implications to customers and the AI or AI subsidiary (e.g. different or diminished consumer protection in the jurisdiction concerned). In any case, the AI or AI subsidiary should be satisfied that it is appropriate to make such introduction or referral to the trustee outside Hong Kong, and the arrangement will not lead to reduced protection to the customers; and

(c) The AI or AI subsidiary should have an agreement in place with the introduced or referred trustee on how to handle incidents (e.g. disruption of services, data leakage), including notification on any impacted customers and safeguarding their interests.

Exemptions

30. To minimise any regulatory overlap, it is proposed that depositaries licensed or registered for the proposed RA13 under Schedule 5 to the SFO will be exempted from the scope of the proposed Code when RA13 comes into effect insofar as the trust services provided relate to a CIS authorized by the SFC under section 104 of the SFO and form part of the regulated functions for RA13 under the SFO.

31. Likewise, companies approved by the MPFA under section 20 of the Mandatory Provident Fund Schemes Ordinance (Cap. 485) (“MPFSO”) are also proposed to be exempted from observing the proposed Code insofar as the trust services provided relate to the MPF products mentioned below:

(a) a registered scheme or its constituent fund (as defined in section 2(1) of the MPFSO) (“MPF schemes”); and

(b) an approved pooled investment fund (“APIF”) (as defined in section 2 of the Mandatory Provident Fund Schemes (General) Regulation (Cap.

485A)) which is or is intended to be offered only to:

(i) professional investors for the purposes of MPF products;

(ii) employers (as defined in section 2(1) of the MPFSO);

(iii) MPF schemes;

(iv) occupational retirement schemes (as defined in section 2(1) of the Occupational Retirement Schemes Ordinance (Cap. 426) (“ORSO”));

(v) pooled agreements (as defined in section 2(4) of the ORSO); or (vi) other APIFs.

32. For accountancy firms and law firms that are subject to their own set of professional code or ethical standards, it is proposed that they should also be excluded from adopting the proposed Code.

Non-compliance

33. The HKMA oversees the trust business of AIs and AI subsidiaries as part of its supervision of the businesses of the AIs as a whole. The HKMA will monitor their compliance with the proposed Code in its ongoing supervision.

34. Where a trustee identifies that there is material non-compliance with the proposed Code or it comes to its attention that there is material non-compliance, the case should be promptly reviewed and timely reported to the senior management and relevant regulators as appropriate in accordance with the guidance under Principle 6 Co-operation with regulators in the proposed Code.

35. It is proposed that failure of a trustee to adhere to the proposed Code may call into question the fitness and propriety of the trustee, whether the AI concerned continues to satisfy the minimum criteria for authorization in the BO, and / or the fitness and propriety of the chief executive (including alternate chief executives), directors and shareholder controllers of the AI concerned.

Consultation questions:

Question 1: Do you have any comments on the proposed scope of the Code?

Question 2: Do you have any comments on the proposed applicability of the Code?

Question 3: Do you agree with the proposed exemptions from the Code? If not, please explain your views.

Question 4: Do you consider any other exemptions necessary? If so, what are they and why are they necessary?

General Principles

36. It is proposed that there will be six general principles in the proposed Code:

(a) Principle 1 Fairness, honesty and integrity: A trustee should act honestly, fairly, and with integrity in conducting its trust business;

(b) Principle 2 Due skill, care and diligence: A trustee, in conducting its trust business, should act with due skill, care and diligence, and in the interests of its customers. A trustee should ensure that the entity through which trust business is conducted and all relevant staff are fit and proper to perform their roles and functions;

(c) Principle 3 Management and control of trust assets: A trustee should exercise due care in understanding, managing and controlling all assets held within the trust in full conformity with its fiduciary obligations;

(d) Principle 4 Corporate governance and internal controls: A trustee should establish a proper corporate governance structure and implement adequate internal controls and risk management systems to ensure that its trust business is effectively managed;

(e) Principle 5 Compliance with legal and regulatory requirements

and standards: A trustee should comply with relevant legal and regulatory requirements and standards applicable to the conduct of its trust business activities; and

(f) Principle 6 Co-operation with regulators: A trustee should deal with relevant regulators in an open and co-operative manner.

Consultation questions:

Question 5: Do you have any comments on the proposed six general principles?

Question 6: Do you think any other general principles are necessary? If so, what are they and why are they necessary?

Standards of Conduct

Principle 1: Fairness, honesty and integrity

37. A trustee should ensure that its actions comply with relevant requirements and standards applicable to the trustee and/or its staff, where appropriate.

The higher standards should prevail. It is proposed that a trustee should observe the following:

(a) A trustee should conduct its trust business with integrity. A trustee should not engage in any conduct involving fraud or dishonesty or commit any act that reflects adversely on its honesty, trustworthiness or that compromises its integrity.

(b) A trustee should not attempt to avoid its responsibilities under the proposed Code and any other applicable requirements and standards.

(c) A trustee should act fairly and objectively when dealing with the settlors and beneficiaries of a trust (collectively “the customers”). In particular, a trustee should:

(i) act in accordance with the objects of a trust and work within the parameters and terms set out in the trust governing documents (i.e. contracts, agreements or any other documents setting out the general and specific terms associated with services provided / to be provided by a trustee, for example, trust deeds) and/or any directions from a relevant party where permitted, in accordance with applicable requirements and standards;

(ii) treat its customers fairly at all stages of the relationship and act impartially between them (such as treating same classes of

beneficiaries equally and treating different classes of beneficiaries fairly), while having regard to its legal and contractual obligations;

(iii) take all reasonable steps to consider and strive for a balance between the different objects of the trust, and, where practicable, strive for a balance between the interests of the stakeholders;

and

(iv) provide objective advice where required and appropriate to its customers and exercise independent professional judgement in performing its duties.

Disclosure of information

38. It is proposed that a trustee should make adequate and accurate disclosure of relevant information to help customers make an informed decision prior to entering into any contract or agreement (for example, key risks, terms and conditions, fees and charges). A trustee should ensure that where appropriate customers have access to relevant and updated information concerning that trust. Where there are any material changes or updates relating to the trust from time to time, a trustee should timely provide notifications to those parties to the trust entitled to that information.

Fees and charges

39. It is proposed that a trustee should ensure that fees and charges in relation to a trust are fair and reasonable. A trustee should be open and transparent with customers about fees and charges, for example:

(a) prior agreement on fees and charges, and document the basis for such fees and charges;

(b) prior disclosure of any fees and charges, commissions, rebates, compensation, or benefits to be received from parties other than the customers;

(d) giving adequate notice before introducing any change in fees and charges; and

(e) disclosure of the arrangement of fees and charges in relation to the termination of services, such as whether fees paid in advance are refundable in the event of termination.

14 Representations

40. It is proposed that a trustee should take reasonable steps to ensure that representations made, including invitations and advertisements, are accurate, and do not contain information that is false, misleading, or deceptive.

Consultation questions:

Question 7: Do you have any comments on the proposed standards for disclosure of relevant information?

Question 8: Do you have any comments on the proposed standards for fees and charges?

Question 9: Do you have any comments on the proposed standards for representations?

Question 10: Do you have any other comments on the proposed standards for the principle on “fairness, honesty and integrity”?

Principle 2: Due skill, care and diligence

Prompt execution

41. It is proposed that a trustee should take all reasonable steps to execute requests or instructions from customers promptly and effectively, including the establishment, transfer or closing of business relationships.

Acting in the interests of customers

42. It is proposed that a trustee should act with proper purpose, and act with due skill, care, and diligence in performing its duties. A trustee should not take up outside duties or responsibilities that may pose undue influence on the trustee’s decisions or compromise the trustee’s ability to act in the interests of the trust.

43. A trustee should have a complete and updated understanding of the trust governing documents in each case, and seek legal or other professional advice where necessary.

44. A trustee should treat the interests of customers as paramount, subject to any legal obligations to other parties. Where there is more than one trustee,

a trustee should consider whether it is appropriate to make decisions collectively, and only act on an individual basis if direction to do so may be given by an appropriate stakeholder or if otherwise to do so would clearly be in the interests of the customers.

45. When a trustee exercises power or discretion for or on behalf of its customers (such as the power to invest, manage or arrange for investment), it should act with due care and attention to ensure that it suitably exercises such power or discretion. For example, a trustee should:

(a) act on a fully informed basis;

(b) exercise power or discretion consistently in accordance with the objects and terms set out in the trust governing documents and applicable legal and regulatory requirements; and

(c) evidence any decision made, in particular for decisions constituting a departure from the objects and terms set out in the trust governing documents.

Handling conflicts of interest

46. It is proposed that a trustee should establish and implement effective policies and procedures to identify and manage actual or potential conflicts of interest.

47. It is proposed that a trustee should consider the circumstances in determining the appropriate actions to handle actual or potential conflicts of interest so that they can be avoided or prevented, and if not possible, at least appropriately managed. For example, a trustee should:

(a) segregate duties adequately;

(b) establish necessary information boundaries, such as physical separation of certain departments or data segregation;

(c) identify the relationships, services, activities or transactions of the trustee in respect of which conflicts of interest may arise, and set out possible measures for preventing or managing these conflicts, such as:

 ensuring that deliberations, voting and decision making on issues exclude those persons whose participation may give rise to a real or perceived conflict;

 disclosing interests or conflicts to the customers and other impacted parties, and if appropriate, seeking customers’ written consent;

 advising customers to seek independent professional advice if needed; and

(d) takes reasonable steps to ensure that customers are fairly treated.

48. If a trustee has involvement with any connected party, it should implement proper internal controls, including dealing with connected parties on an arm’s length basis and in the interests of the trust, disclosure of connections, and maintaining proper documentation of the justifications for approving a transaction with a connected party.

Fitness and propriety of a trustee and its staff

49. It is proposed that a trustee should possess and maintain sufficient skills, knowledge and expertise to conduct its trust business. It should only conduct those areas of trust services for which it has relevant professional knowledge and expertise.

50. A trustee should ensure relevant staff are and remain fit and proper for their roles and responsibilities. A trustee should also ensure that relevant staff and staff engaged in compliance, internal controls, risk management and internal audit functions possess the necessary technical knowledge and skills, ethics and compliance knowledge, qualifications and experience.

51. A trustee should establish and implement appropriate training policies, procedures and plans that take into account the following:

(a) assessing the adequacy of relevant academic and professional qualifications, knowledge, skills, work experience and soundness of judgement of staff;

(b) assessing propriety of staff, such as any adverse records related to integrity, reputation and character, and require staff to update the trustee for any changes thereafter (e.g. convicted a criminal offence which is related to fitness and propriety, disciplined or disqualified by a professional or regulatory body in relation to the business or profession, bankruptcy order);

(d) establishing a training plan and providing relevant and timely guidance and training to staff initially and on an on-going basis, including relevant induction and continuous training and development on technical knowledge and skills, industry developments, applicable legal and regulatory requirements (including ethics and compliance knowledge), and relevant internal control policies and procedures.

52. In order to maintain on-going professionalism and keep abreast of the latest development, relevant staff are expected to fulfil not less than 10 hours of trust-related continuous professional training (“CPT”) in each calendar year, of which at least 2 hours are on ethics and compliance. For the avoidance of doubt, trust-related professional training or development activities fulfilled by an individual under relevant professional qualifications can count towards the CPT hours in the same calendar year under the Code, provided that such training or development activities are achieved through the acceptable

means mentioned below: (i) classroom training courses, workshops, lectures, seminars; (ii) distance learning or self-study which requires submission of assignments or assessments; (iii) industry research, publication of paper, delivery of speeches or providing comments to industry consultation papers; and/or (iv) time spent in giving lectures or teaching (although repeatedly giving the same lecture or teaching should not be counted as satisfying the requirement).

53. We do not intend to accredit or specify eligible training providers, training programmes or courses, or professional qualifications that could be counted as relevant training activities. Trust-related training may be organised by relevant professional bodies, training providers or employing institutions.

This proposed approach will allow flexibility for relevant staff to choose relevant training that is suitable to their needs and circumstances.

54. A trustee should keep records to evidence the competence and on-going professional development of relevant staff and staff engaged in compliance, internal controls, risk management and internal audit functions.

Competency and professional development of trust practitioners

55. For development of the trust industry in Hong Kong, it is important to have a pool of professional talents. The availability of transparent competency standards will enable more effective training for new entrants and professional development for existing trust practitioners.

56. At present, there are local and international professional qualifications made available to trust practitioners, such as “Certified Trust Practitioner” awarded by the HKTA and “Trust and Estate Practitioner” awarded by The Society of Trust and Estate Practitioners (“STEP”). We would like to take this opportunity to hear the views from the industry to what extent the existing

在文檔中 Consultation Paper on Enhancing the Regulation and Supervision of Trust Business (頁 8-27)