The Hong Kong trust industry identifies compliance, regulations and increasing trust assets as the top priorities as it seeks to establish itself as a formidable trust jurisdiction, a study by KPMG and the Hong Kong Trustees' Association shows.  

Trust refers to a wide spectrum of financial services, covering mandatory provident fund schemes, exchange traded funds and other kinds of retail funds, private trusts for wealth and estate planning and charitable trusts. 

According to the report, while Hong Kong presents itself as a major financial centre, there is limited focus on its role as a trust and fund services hub. Thus, the Hong Kong government is pursuing a long-term vision and policy on developing the local trust industry and creating an environment suitable for its growth. 

Around 55 per cent of the survey respondents said increasing trust assets was their first priority in the next 12 to 18 months, followed by compliance and regulations (42 per cent) and cost management (40 per cent). However, 28 per cent said the US Foreign Account Tax Compliance Act (FATCA) presented a regulatory challenge, same with anti-money laundering (22 per cent), MPFA regulations (16 per cent) and then by the Hong Kong Trustee Ordinance (12 per cent).

In terms of having the right people for the job, there seems to be a shortage of talent in the trust sector, with 28 per cent of the respondents saying that a lack of critical business knowledge was the major staffing issue. Other concerns were salary and compensation pressures, high turnover and lack of succession planning. 

Despite these challenges, one-third of those surveyed said that they have used Hong Kong as a trust jurisdiction. Others, however, opted to go out and toward more traditional offshore jurisdictions like the British Virgin Islands (13 per cent), Cayman Islands (14 per cent), Jersey (10 per cent) and Bermuda (4 per cent). The key factors in choosing the location are customer preference, tax effectiveness and legacy reasons.

“In the medium and long term, the operating environment of the industry is characterized by emerging opportunities, intensifying competition with local and global players, and increasing expectations from clients and regulators. At the same time, industry players are anticipating the benefits from the forthcoming policy initiatives, including HKTO reform, and mutual recognition of funds by mainland China and Hong Kong," said Vivian Chui, partner at KPMG China.

The report's release is concurrent with the Hong Kong Trustee Ordinance Amendment Bill legislation passed by the Legislative Council on 17 July, which updates an age-old legislation with the view to create a modern trust administration and attract more business to the territory.