Setting the limits

Friday, 01 February 2013
Looking at the regulation of trust companies in Asia Pacific.

This article looks at the regulation of trust companies in Asia Pacific. Not all jurisdictions are covered; the intention is to consider a sample, providing a comparison. The comparison is intended to lead to conclusions as to whether regulation is inevitable and necessary, or perhaps merely desirable. Should the rules be limited to regulation and not extend to supervision? Is it possible to have too much regulation and, if so, what are the consequences?

Hong Kong and Singapore

Most would agree that the two most relevant and influential jurisdictions in Asia Pacific in this context are Hong Kong and Singapore. Neither of them wishes to be considered ‘offshore’. That word smacks to them of tax evasion and an invitation to unwanted pressure from the OECD and the Financial Action Task Force (FATF). Yet, when it comes to regulation of trust companies, they are presently far apart.

Hong Kong has no regulation of trust companies at present. It has a HKD3 million capitalisation requirement for a ‘trust company’. Hong Kong took notice when Singapore amended its Trustees Act in 2004. The government of Hong Kong has since received requests and advice from professional bodies in Hong Kong to amend the Trustees Ordinance. This issue has continued for more than eight years and it is likely that Hong Kong will amend its Trustees Ordinance in 2013. It is then likely to turn its attention to the regulation of trust companies.

Whereas change in Hong Kong has been driven by professionals, change in Singapore has always been government-driven. Once the Trustees Act had been amended in 2004 it was certain that regulation of trust companies would follow. The Trust Companies Act of Singapore, and ancillary regulations and notices, provide for the following methods of regulation:

  • the licensing of trust companies to carry on trust businesses
  • the approval of resident managers and directors of licensed trust companies
  • the provision of exemptions from licensing
  • the control of shareholdings and voting power in licensed trust companies
  • the keeping of books and records, appointment and control of auditors, and the filing of accounts
  • inspection and investigation powers of the Monetary Authority of Singapore (MAS) as regulator
  • the provision by trust companies of their books and of information to MAS; and
  • other matters, such as appeals.

Singapore provides the most developed and thorough system of regulation of trust companies in Asia Pacific and can be used as a benchmark. While the considerable detail of Singapore’s regulations is beyond the scope of this article, some comment on them is appropriate.

Trust companies are licensed to carry on ‘trust business’. The subject matter of regulation is therefore narrower than ‘trust company business’ or ‘financial services’. These regulations are designed to cover trust companies alone and not other service providers. ‘Trust business’ is defined as:

  • 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 of an express trust; and
  • the provision of trust administration services in relation to an express trust.

These are the reasons for which a licence is granted. Next it is appropriate to consider to whom and on what requirements such a licence is granted. Subject to exceptions, no trust business can be carried on in or from Singapore, except by a licensed trust company. No licensed trust company can establish a place of business outside Singapore to carry on trust business without the approval of the MAS. Not only a Singapore company, but also a foreign company, registered under the Companies Act of Singapore, may be granted a licence. Applicants have to meet minimum financial and other requirements and, of course, pay fees. Grounds for the refusal of a licence are set out in detail; these include insufficient, misleading or false information, financial insufficiency, those involved having criminal records or not being ‘fit and proper persons’, or the MAS not otherwise being satisfied about matters such as financial standing, past performance, expertise, efficiency and public interest. Conditional licences can be granted and there are specific provisions for the automatic lapse of a licence.

There are exemptions from licensing, and these include private trust companies (as defined in regulations), lawyers (broadly defined) and public accountants.

The approval of resident managers and directors required, and specific provisions are set out for their removal by the MAS on several grounds. Not only are the officers of a trust company subject to approval, but also its beneficial owners, being direct or indirect ‘controllers’ holding alone, or with associates, a relevant percentage of the shares or being in a position to control a percentage of the voting power. Controllers have to meet the ‘fit and proper persons’ test, and approval can be conditional. Grounds for objection to controllers are specified. There are requirements by both statute and regulation as to the keeping of the books of a trust company and a trust of which the trust company is trustee. There are detailed requirements for the preparation and filing of the accounts of the trust company, concerning both audit and auditors. Further, the MAS has wide powers of inspection, supervision and investigation.


Moving to Labuan, the Malaysian government amended or reviewed all the laws of that jurisdiction in 2010. This included the introduction of both a secular and an Islamic Financial Services Act. Such legislation includes the licensing of trust companies to carry on ‘trust company business’, which is a much wider concept than ‘trust business’, as defined in Singapore. Unlike Singapore, managed trust companies are permitted. There are financial conditions as to capitalisation and indemnity insurance. Directors and officers have to meet a ‘fit and proper persons’ test. At least two officers are needed, one of whom must be resident in Labuan, and there has to be a place of business in Labuan. There are no exemptions, so applications are needed for private trust companies and for managed trust companies. There are no legislative provisions for the control of shareholdings and voting power, but there are regulations on the keeping of books and records. Labuan has modelled itself on Singapore, but regulation is thin compared with there.


In Mauritius the Financial Services Act 2007 regulates the provision of financial services. The definition of financial services covers ‘activities specified’, which are widely defined, and ‘any financial services or financial business activities governed by the relevant Acts’, which include the Trusts Act 2001. An application for a licence includes a business plan and particulars of providers, beneficial owners, controllers and proposed directors. There are also the following requirements:

  • adequate resources and competent staff
  • proper supervision
  • controllers and beneficial owners must be fit and proper persons; and
  • proper continuity of standards applicable to the business.

Approval of controllers and beneficial owners is similar to Singapore, but much simpler: no transfer of legal or beneficial interests is permitted without approval; disposal of shares and the prevention of the exercise of voting rights are the sanctions. The position is similar for the appointment and removal of officers. They have to be approved and can be removed. There are provisions as to the keeping of records and the filing of audited financial statements. There are detailed provisions covering inspection and investigation. There is a review panel for appeals.

New Zealand

New Zealand has widely used trust law. Even so, regulation of individuals, such as lawyers and accountants, is by professional bodies. The Financial Advisers Act 2008 regulates financial advisors and financial service providers. The Securities Trustees and Statutory Supervisors Act 2011 regulates trustees of, for example, publicly issued equities and unit trusts. Trust companies are not regulated as such, and nor are other trust service providers.


Samoa, which has long provided a variety of companies, mutual funds and banking licences, will soon offer the widest and most versatile trust law available. It also offers a special purpose international company, which is a hybrid between a company and a foundation, and is unique to Samoa, as are provisions of its intended trust law.

Both Samoa and Hong Kong believe regulation of trust companies is necessary, and Samoa will be amending its Trust Companies Act to promote a regulatory rather than a supervisory regime.

New regulation

How should new regulation be developed? Many people perceive the reputational and protective need, so some regulation is generally viewed as better than none. Introduction of new trust laws invites pressure from the OECD and FATF for regulation to be introduced or regulated. Self-regulation is generally seen as undesirable, but the regulator must be conversant with trust business, which may be better regulated separately from other financial services. Arguably, when regulation extends to supervision, too much regulation results. This may unnecessarily overcomplicate administration, which drives up costs and leads to loss of trust business for the jurisdiction concerned.

Author block
Mark Lea

Mark Lea is Managing Director of Lea & White International Advisers Limited.

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