HKMA Proposes New Code of Practice for Banks’ Trust Companies

Source: Regulation Asia Manesh Samtani, Regulation Asia 2020-07-13

The HKMA is looking to address a lack of conduct requirements for trust businesses used by banks and their subsidiaries for wealth management purposes.

The HKMA (Hong Kong Monetary Authority) has published a new consultation paper proposing enhancements to the regulatory framework for trust businesses in Hong Kong, specifically for trusts use by banks for wealth management purposes.

Trustees and custodians of financial assets are already under the regulatory scope of the MPFA (Mandatory Provident Fund Schemes Authority), SFC (Securities and Futures Commission), Insurance Authority, and HKMA.

However, the HKMA has identified gaps in the current regulatory regime, specifically in relation to a lack of conduct requirements for trust business by banks and their subsidiaries.

“We therefore see the merits of developing a regulatory code to strengthen the level of protection of customers making use of trust services, especially those for wealth management purposes,” the HKMA said. “This would in turn enhance clients’ confidence in entrusting assets to trustees in Hong Kong, thereby reinforcing Hong Kong’s position as a leading asset and wealth management centre.”

The proposed ‘Code of Practice’ sets out the general principles and practical standards to govern the conduct of trustees, covering six areas:

Fairness, honesty and integrity; covering disclosure of information, fees and charges, and representations made by the trustee
Due skill, care and diligence; covering prompt execution, acting in the interests of customers, conflicts of interest management, fitness and propriety of the trustee and all relevant staff, and competence and professional development of trust practitioners
Management and control of trust assets; covering ownership, entitlement, segregation, and regular reconciliation of trust assets, including procedures to guard against loss, theft, fraud and misappropriation
Corporate governance and internal controls; covering reporting lines, oversight, management accountability, confidentiality of data, outsourcing arrangements, trust administration, business continuity, complaints handling, risk management, record-keeping, and professional indemnity insurance
Compliance with legal and regulatory requirements and standards; covering compliance policies, procedures, functions, and regular review
Cooperation with regulators; covering notifications and reporting to regulators

The HKMA is considering publishing and maintaining a public list of banks and their subsidiaries that conduct trust business in Hong Kong, and requiring trust companies to submit annual declarations that they observe the proposed Code.

To minimise any regulatory overlap, the HKMA proposes that depositaries licensed by the SFC for the proposed RA13, companies approved by the MPFA, and accountancy and law firms, will be exempted from the scope of the proposed Code insofar as they are already covered under existing frameworks.

The consultation paper, available here, is open for comment until 9 October 2020.

Once the Code is finalised, the HKMA proposes to allow up to six months for trust companies to comply.

HKMA

HKMA Proposes New Code of Practice for Banks’ Trust Companies

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