On 30th December 2016, the MFSA released a proposed set of rules for trustees and other fiduciaries for consultation (the “Rules”). These Rules are set to replace the existing Trustee Code of Conduct and are envisaged to confer greater legal certainty to the regime, with a view to clarifying the nature of licence holder obligations and securing further standardisation within the industry. These Rules extend to mandatories and administrators of private foundations as well as to trustees, which are collectively being referred to as ‘Authorised Persons’ in the proposed Rules.
It is being proposed that the Rules be divided into three parts. Part A contains general requirements that are applicable to all Authorised Persons, including those relating to authorisation requirements, the application process and assessment criteria, and ongoing requirements around regulatory disclosures, duty of confidentiality, and retention of records. The Rules also include proposals around organisational requirements in connection with competent and effective management, adequate personnel and staff competence, adequate systems and controls, complaints management, customer due diligence, conflicts of interest, delegation, fees, and other general conduct of business arrangements. If implemented in their proposed form, the most noticeable obligations include key members of staff having to undertake a minimum of 25 hours of training, the introduction of a complaints management policy, and customer due diligence measures which include obtaining bank references for all parties concerned. In addition, the MFSA is proposing to formalise the submission of an Annual Compliance Return for Trustees and Other Fiduciaries.
Part B contains requirements around the compliance function, financial resources, and professional indemnity insurance, applicable to both individuals and legal entities that are authorised as either trustees or mandatories. Under the revised rule-book, Authorised Persons shall appoint a Compliance Officer who, prior to his/her appointment, must submit a Personal Questionnaire to the MFSA for its approval. The minimum capital of the Authorised Person remains of €15,000, provided that higher capital requirements may apply where the Authorised Person undertakes other activities. The Rules provide for an Authorised Person to maintain adequate professional indemnity insurance cover at all times, while also prescribing the minimum amount of coverage as well as listing the mandatory events which are to be covered under the policy.
The final Part C of the proposed Rules contains audit requirements applicable to legal entities authorised as trustees or mandatories. These obligations include prescriptive requirements around the contents of the letter of engagement and the duties of the auditor thereof. The MFSA is also proposing the introduction of similar requirements to those applicable to investment services provider in terms of including a statement in the annual report disclosing conformity with the Rules or otherwise explaining any breaches and the administrative sanctions imposed thereto. The Rules provide for copies of the engagement letter, the management letter and the annual report to be submitted to the MFSA on an annual basis.
The Rules are set to come into force with immediate effect from date of issue, provided that a person already authorised under the Trusts and Trustees Act before the coming into force of the Rules shall ensure that they are in compliance therewith within six months.
The introduction of a rule-book in the trustees and fiduciary services sector is helpful in aligning the regulator’s expectations with those of operators; indeed, it helps ensure a higher degree of certainty and level playing field amongst market players. Trustees and other fiduciaries impacted by these proposed Rules are invited to consider carefully the detailed requirements such that they are able to feed back to the MFSA on the specific issues raised in the consultation document and comment on other ancillary matters by not later than 31 January 2017. The consultation document can be accessed here.