The Fiduciary Services Regulatory Codes

1
The Fiduciary Services Regulatory Codes

• Industry Briefing
• John Aspden
• Chief Executive
• Financial Supervision Commission
• 23 November 2004

2
Introduction

• Fiduciary business the perceived risks
• The Edwards Review 1998
• Introduction of CSP regulation 2000
• TSP regime builds on the existing CSP framework

3
The TSP Consultation Process

• Initial consultations May 2001, Jan. 2002
• Consultation on draft Bill and Codes - July 2003
• Stikeman Elliott Review February 2004
• Fiduciary Services Bill 2004
• Further consultation on the Codes 8 November
  2004

4
The Stikeman Elliott Review

• Undertaken at the request of industry
• Stikeman Elliott were nominated by industry
• Remit agreed with the Professional Bodies
• Comparative benchmarking approach
• Detailed report on identified issues
• Outcomes agreed with professional bodies
• Amendments to Bill and Codes reflect the agreed
  outcomes

5
The Statutory Framework

• Fiduciary Services Bill 2004
• Fiduciaries (General Requirements) Regulatory
  Code
• Fiduciaries (Clients Money and Trust Money)
  Regulatory Code

6
The Fiduciary Services Bill 2004

• Extends Corporate Service Providers Act 2000 to
  TSPs
• First Reading, House of Keys June 2004
• Second Reading - October 2004
• Clauses November 2004
• In force - end Q1 2005?

7
What is a Fiduciary?

• Fiduciary CSP or TSP or (CSPTSP)
• A person who, by way of business, engages in
  regulated activity - new s.1(1), CSPA
• Regulated activity - Schedule 1, CSPA

8
New Exemptions

• Other regulated businesses
• Private trust companies
• Court appointed trustees
• Personal representatives
• Testamentary trusts with an Island connection
• Trust administration for a licenceholder

9
The General Requirements Code

• Consolidated Code for CSP and TSP
• CSP provisions materially unchanged
• TSP provisions revised to address issues raised
  in consultation and SE Review
• Licenceholders carrying on CSP and TSP business
  will be treated as one business

10
No conflict with trust law

• Paragraph 2(2) the codes are not intended to
  alter a fiduciary's obligations under company or
  trust law and should be construed accordingly
• Existing, well-established framework regulates
  the duties and obligations of the trustees of
  individual trusts
• Fiduciary regime seeks to regulate the conduct of
  the TSP business as a whole

11
Classes and Categories of Licence

• 2 classes CSP and TSP can hold either or both
• Cat 1 and Cat 2 CSP unchanged
• Category 1 TSP approved trust corporations
  (Trustee Act 1961, s.65A )
• Category 2 TSP any regulated activity except
  acting as an ATC
• Category 3 TSP individual acting as trustee or
  protector only

12
TSP Category 1 (ATCs)

• Same financial resources requirement as Cat 2 TSP
• Enhanced COMPETENCE test
• Detailed proposals in forthcoming Licensing
  Policy Consultation
• Transitional arrangements for existing ATCs

13
KYC

• Paragraph 4 demonstrate compliance with
  existing AML Codes and Guidance Notes
• IPA guidance may be followed by fiduciaries which
  are part of insurance groups

14
Financial Resources

• Going concern requirement- para.11(1)
• Adequate capitalisation para. 12(1)(a) -
  25,000
• Demonstrate current assets exceed current
  liabilities at all times - by TSPs selected
  method
• Equivalent requirement for sole traders -
  25,000 in segregated bank account

15
Professional Indemnity Insurance

• Appropriate to nature and size of business
  (para.20)
• Aggregate cover - 2.5 x turnover or -
  500,000whichever is the higher
• Excess not exceeding 3 of turnover

16
The Clients and Trust Money Code

• Consolidated clients money code for CSPs and
  TSPs
• Trust money (para.4) trust assets held in cash
• Duty to segregate trust money
• Best practice separate accounts for each trust
• Clients account can be used if this is
  impractical
• Controls and reconciliations

17
Consolidated Licensing Policy

• The Commission must be satisfied that the
  applicant and all its controllers, directors,
  managers and key staff are fit and proper
• New, consolidated Licensing Policy will be issued
  for consultation shortly
• Consultation periods will overlap
• Licensing Policy is guidance allows greater
  flexibility

18
Licensing Issues

• Applications determined by the Board of
  Commissioners at a formal hearing.
• Applicants and Board members receive papers 14
  days in advance
• Opportunity to attend and make representations
• The Commission may to defer making a decision for
  a reasonable time
• Right of appeal

19
Proposed Timetable

• Act in force end Q1 2005
• Application process open Q2 2005
• 3 month application period
• Transitional provisions as for CSPs
• Applications dealt with in order of receipt
• First licences issued Q4 2005

20
Questions?

• John Aspden
• Chief Executive
• Financial Supervision Commission
• 23 November 2004