Legal
Analysing The New Singapore Trust Regime

Many readers will be aware of the proposed reforms to the Singapore Trust Companies Regime. It has now been confirmed that these reforms wil...
Many readers will be aware of the proposed reforms to the Singapore Trust Companies Regime. It has now been confirmed that these reforms will take effect from 1 February 2006, when the Trust Companies Act comes into force. With the steady expansion of the trust industry along with robust growth in the private banking and wealth management industries in Singapore over the recent years, this much-anticipated announcement is welcome. The Act introduces a new regulatory framework for persons carrying on “trust business” in or from Singapore and will be regulated by the Monetary Authority of Singapore. It is accompanied by the Trust Companies Regulations, the Notices and Guidelines issued by the MAS to augment and clarify the provisions of the Act. Here we take a closer look at some of the salient features under the new regulatory framework and some of the key concerns which may arise under the Act and the accompanying Regulations below. Mandatory Licensing Licensing will be mandatory under the new Act for any person carrying on a “trust business”, unless specific exemptions apply. “Trust business” is defined to mean: · the provision of services with respect to the creation of an express trust; · acting as trustee in relation to an express trust; · arranging for any person to act as trustee in respect of an express trust; · the provision of trust administration services in relation to an express trust. An existing trust company registered under the existing trust regime will be deemed to hold a licence under the new regime until 1 June 2006 or upon the grant or refusal of a new licence by the MAS, whichever is later. A person carrying on trust business who is not registered under the existing trust regime will be exempt from the requirements to hold a licence until 1 June 2006 or upon the grant or refusal of a new licence by the MAS, whichever is later. Regulation of Licensed Trust Companies The Regulations set out provisions regarding the licensing of a trust company, financial and book keeping requirements as well as the duties and obligations of resident managers and directors of licensed trust companies. Pertinent requirements include: (a) A licensed trust company must appoint at least 2 resident managers with the MAS’ approval. Specific criteria must be met in selecting the resident managers and they include requirements concerning the years of experience, educational qualifications and past performance. (b) Compliance: Resident directors will be responsible for implementing and monitoring all operational areas of the trust company, including financial and trust administration. Many of the policies must be in written form. (c) Capital Maintenance: The minimum paid up capital for a licensed trust company is S$ 250,000 1. The trust company must also maintain a minimum net asset value equal to S$ 187,500 or ¼ of the annual expenditure of its previous financial year (whichever is higher). For newly established trust companies, it must maintain a minimum net asset value of not less than $187,500. MAS must be notified immediately if the required net asset value is not maintained. The MAS may also impose additional directions and conditions and has the power to revoke or suspend the licence of a licensed trust company for non-compliance. (d) Insurance: The licensed trust company must maintain professional indemnity insurance but the Regulations (in its finalised version) removed the requirement previously imposed (in the draft version) on the resident manager and the director to certify that the insurance coverage is not false or misleading. Exemptions Section 15 of the Act outlines the category of persons who would be exempt from holding a trust business licence. They include, amongst others, banks and merchant banks (licensed under the relevant legislation2) provided that they do not act as trustees themselves, advise on trusts or make any significant decisions affecting a trust. Any holder of a capital markets services licence (or persons exempted from holding a licence3) with respect to providing fund management or custodial services under the Securities and Futures Act is also exempt from the licensing requirements under the Act. Further exemptions are also provided in accordance with the Trust Companies (Exemption) Regulations 2005 for the following persons: 1. Private Trust Companies (PTCs) : A PTC means a corporation that provides services solely in respect of specific trust(s) where every settlor is a connected person to any other settlor of any other trust to which the PTC provides trust business services and each beneficiary of a trust is a connected person to the settlor of the trust. Although exempt from licensing under the Act, a PTC is required to engage a licensed trust company to carry out anti-money laundering checks. 2. Lawyers/Accountants: Lawyers and Accountants assisting in the creation of express trusts, arranging for trustees or providing non-discretionary administration services to such trusts are exempt. Lawyers may also act as trustee in relation to an express trust without obtaining a licence provided that MAS’ notification is complied with and the financial assets and number of clients relating to such trusts are below the prescribed amounts. 3. Persons carrying out introducing activities: “Introducing activities” is defined to mean activities which involve introducing, or recording and forwarding client details to persons providing trust business services. 4. Overseas persons who enter into arrangements with licensed trust companies or exempt licensed banks and merchant banks, to provide services for the creation of express trusts or arranging for trustees of such trusts, are also exempt. Conclusion The new licensing provisions reflect a significant departure from the previous voluntary registration process. Given the wide definition of “trust business” in the Act, banks, merchant banks and trust companies outside Singapore carrying out any activity falling within the scope of “trust business” in or from Singapore appear to be caught and are required to comply with the requirements under the Act. In particular, trust companies that are not currently registered should: (a) Determine whether current operations and activities will require a licence under the regime, and take steps to apply for a trust business licence unless otherwise exempt. (b) Review current internal controls, policies and procedures, and consider if additional written policies or guidelines are required. (c) Review capital maintenance requirements and current staffing and consider if the criteria set under the Act will be met. Going forward, monitoring will be required to ensure that activities conducted remain within the standard of conduct expected of a licensed trust company. Stricter enforcement mechanisms have been instituted under the Act. Contravention of specific provisions under the Act and the Regulations may attract fines and in some instances, revocation or suspension of the trust business licence. Overall, this new regime seeks to further enhance Singapore’s reputation as a sound, well-regulated and internationally competitive financial centre and contribute to the growth of the private banking industry.