1   The Minister for Education and Deputy Chairman of the Monetary Authority of Singapore (MAS) today moved the Trust Companies Bill 2005 (the Bill) for first reading in Parliament.  The Bill will be read for a second time and discussed at the next available Parliamentary sitting. 

2   MAS had earlier conducted public consultation on the proposals for the new regulatory framework for trust companies and a draft of the Bill.  Comments received have been incorporated, where appropriate, into the Bill. 

OVERVIEW

3   Trust companies are service providers that engage in the business of acting as trustee or administering trusts.  They may also create trusts or arrange for another person to act as trustee.  Trust business has grown in tandem with the growth of the wealth management and private banking industry in Singapore.  As a result, the number of trust companies has grown significantly. Trust companies in Singapore are currently regulated by the Accounting & Corporate Regulatory Authority ("ACRA") under the current Trust Companies Act ("TCA"). 

4   Under the current TCA, registration of trust companies is voluntary.  Under the new regulatory framework, licensing will be mandatory. Higher standards of regulation and supervision will also be established for trust companies. There will be limited exemptions from licensing and lighter regulation for certain entities set out in the Bill and Regulations.  

5   The new regulatory framework will increase legal clarity and guidance for trust companies in Singapore.  It will also ensure high standards of business conduct, professionalism and competence in the trust services industry.  These high standards will include measures for anti-money laundering and countering the financing of terrorism (AML/CFT), which are not covered in the current TCA.  Exempt persons will still be required to comply with AML/CFT provisions.

KEY MEASURES UNDER THE NEW REGULATORY FRAMEWORK AND BILL

Mandatory Licensing (Part II)

6   Under the current TCA, registration of trust companies is voluntary.  Under the new regulatory framework, licensing will be mandatory for anyone engaging in trust business. Trust business is defined broadly to include any business of creating or administering an express trust or of acting as or arranging for a person to act as, a trustee of an express trust.  The definition must be broad because any of these activities is a potential avenue for abuse if not properly regulated. However, with a broad definition, there will be more circumstances where limited exemptions from licensing and lighter regulation will be appropriate.  There will be limited exemptions from licensing and lighter regulation for entities such as banks and merchant banks, lawyers and accountants, private trust companies, and overseas persons visiting Singapore.

Requirements for Resident Managers (Part II and forthcoming Regulations)

7   Each licensed trust company will be managed by at least two executive officers, called "resident managers", who will live and work in Singapore.  The requirement for two managers is to reduce the incidence of significant errors in management. It is also a control measure to prevent any single individual from having the ability to engage in unnoticed illicit activity.  The residency requirement is to ensure that the persons managing the affairs of the licensed trust company are based in Singapore. To ensure that the business is managed properly and prudently, MAS will require resident managers to meet minimum standards of education and relevant experience.  In addition, MAS will require them to undergo continuing professional development.

MAS Approval for Directors, Managers and Significant Shareholders (Parts II and III)

8   Directors and resident managers are the persons entrusted with the responsibility for the licensed trust company and should be fit and proper individuals. Before a person may be appointed as a director or manager of a licensed trust company, he must satisfy MAS' "fit and proper" test. The test will examine issues such as financial soundness, past business performance, and integrity.  As significant shareholders can influence the management of the licensed trust company, persons and entities wishing to become significant shareholders will be required to seek MAS' approval.

Financial Soundness Requirements (Part II and forthcoming Regulations) 

9   Under the Bill, MAS will have the power to prescribe minimum financial and other requirements for a licensed trust company.  These include financial soundness requirements.  Locally-incorporated licensed trust companies will be required to maintain minimum capital levels depending on the size of the business. Licensed trust companies that are branches of foreign trust companies will be required to maintain assets in Singapore according to the size of the business.  MAS will require licensed trust companies to have adequate professional indemnity insurance.

Supervisory Powers (Parts VI and VII)

10   MAS' supervisory powers over licensed trust companies will be similar to those it has over other financial institutions.  MAS will conduct regular inspections of licensed trust companies and have powers to investigate when needed.  Licensed trust companies will be required to submit annual audited accounts and other supplementary data. Although MAS' power will include the power to inspect the accounts of trusts, these will not be the focus of inspection and MAS will not require trust accounts to be submitted. MAS will use these supervisory powers to check for good governance, anti-money laundering, adequate systems and processes, and various other matters of legal compliance.  MAS will also have powers to restrict the operations of a licensed trust company, revoke a licence, or petition the Court for the winding-up of a licensed trust company.

Anti-money Laundering and Countering the Financing of Terrorism (AML/CFT) (Part X and forthcoming Notice)

11   In its revised Forty Recommendations issued in June 2003, the Financial Action Task Force extended anti-money laundering measures to cover trust companies. MAS will impose AML/CFT requirements on licensed trust companies similar to those for other financial institutions. 

Systems and Processes (Parts II and X and forthcoming Regulations and Guidelines)

12   MAS will have powers to prescribe regulations as well as issue written directions.  MAS will also have powers to issue guidelines, codes and other similar documents.  Pursuant to these powers, MAS will add to the regulatory framework systems and processes for proper business conduct and compliance with regulatory requirements. These systems and processes include continuing professional development, record-keeping, legal compliance procedures, and complaints-handling procedures. 

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