"Trusts in Asia Pacific Conference"

INTRODUCTION

Distinguished Guests, Ladies and Gentlemen

1   Thank you for inviting me to speak this morning. I would like to take this opportunity to share with you MAS' observations of developments in the trust services industry and our thinking on the regulatory framework for the industry in Singapore. 

2   Trust services are growing in importance globally, as part of the wide array of asset management services offered by financial institutions. Trusts have become an integral part of estate and succession planning.  This is an area of huge growth both in the US and in Asia as significant amounts are estimated to be transferred over the next 50 years.

3   In Singapore, the trust services industry has expanded steadily in recent years along with the strong growth in the asset management industry. Total assets under management in Singapore have exceeded half a trillion (S$572.6 bn) with more than 70% of this sourced from overseas.  There are more than 200 fund managers including the largest private banks and more than 80 hedge funds. This demonstrates Singapore's role as an Asian center for asset management.  

4   Singapore is attractive as an asset management centre because of our sound common law legal framework, and economic, financial and political stability.  As the Asian economies expand, as they are expected to do so robustly, our asset management business is poised for strong growth.  The 2005 Merill Lynch Cap Gemini Report cited Singapore as having the fastest growth in the number of High Net Worth Individuals in the world, at 22.4% for 2003-2004.  For the Asia Pacific region, the growth in wealth of High Net Worth Individuals is estimated at 7% a year to reach US$10.1 trillion by 2009.  Singapore also offers the advantage of having a comprehensive network of Double Taxation Agreements.  With these favorable factors, many global players have been prompted to locate their trust administration business here.  As end last year, we know of at least 16 players employing over 250 people, providing trusteeship for some S$80bn in assets. This is a twofold increase in two years.

5   These results demonstrate that MAS' proactive efforts are paying off.  We see developing trustee and custody services as a strategic initiative towards developing the entire value chain of services for the asset management industry here.  Our efforts have thus far concentrated on revising our trust laws and making the levels of taxation attractive.  We worked with the Ministry of Law to update our Singapore Trustees Act which came into effect in December 2004.  These amendments modernise our trust laws, bringing them broadly in line with the UK Trustee Act 2000. 

6   These legislative changes are complemented by a series of tax policy changes.  They include exempting all foreign sourced income for individuals from taxation and providing Approved Trustee Companies a concessionary tax rate for the provision of trustee and custodian services.  Income from foreign trusts administered by an Approved Trustee Company and income derived through an eligible investment holding company have also been exempted.  Finally, in the Budget this year, income for foreign accounts of charitable purpose trusts is now exempt.  We will continue to seek industry feedback and adjust our tax regime to remain competitive. 

7   We recognise that given the growth and increasing sophistication of the industry, there has been increasing pressure for trust companies to be regulated so as to foster high standards of professional conduct and to discourage illicit activities.  The Financial Action Task Force, an international inter-governmental body that recommends standards to combat money laundering and terrorist financing, has extended its recommendations to cover the trust services industry.  The Financial Stability Forum, a grouping of regulators of major financial centres including Singapore, has expressed concern that the migration of trust companies to unregulated jurisdictions presents significant risks. 

8   MAS has also received feedback from trust companies that a sound framework for the regulation of the trust services industry will attract top professionals and their clients to do more trust business in Singapore.  In other words, as in other areas of the financial industry, good regulation promotes good growth.

9   Over the last two years, MAS devoted considerable effort to update the regulatory framework for trust companies. We consulted the industry in July 2004 and again in August 2005. Under the new framework, MAS will regulate trust companies, taking over the responsibility from the Accounting and Corporate Regulatory Authority.  The key piece of the new regulatory framework is the new Trust Companies Act, which was passed in Parliament in February this year.  The Act will become effective at the same time as the Regulations, Notices and Guidelines, for which public consultation closed in September.  I shall proceed to outline our thinking on the new regulatory framework.

SCOPE OF THE TRUST COMPANIES ACT

10   The Trust Companies Act will regulate those doing trust business in Singapore, regardless of the location of the trust assets or the law of the trust.  Only persons that carry on trust business will be regulated. 

11   Trust business is defined broadly under the Act, to include trusteeship, administration of trusts, arranging for others to act as trustees and creation of trusts.  We will release guidelines to give detail to these concepts.  The definition is broad as we consider that high standards of probity, professionalism and good business conduct should be followed in all aspects of trust business.  Given the broad definition, Exemptions have been carefully crafted for the following groups of entities: those who inadvertently fall under the Act, those who are already regulated by MAS (such as private bankers), those who do trust business as part of their professions (such as lawyers), and those that can be regulated in a way commensurate with the lower risks they pose (such as private trust companies and overseas persons). 

12   MAS will not license representative offices to conduct trust business.  Anyone seeking a trust business licence must establish a true presence in Singapore, with mind, management and administration, including record-keeping, located here.  However, overseas persons may carry out certain trust business if that business is effected under an arrangement with a Singapore licensed trust company, bank or merchant bank.

OUR APPROACH TO REGULATION AND SUPERVISION OF TRUST COMPANIES

13   In all areas of financial regulation and supervision, MAS is guided by its regulatory objectives and supervisory principles. Two of our desired business outcomes that are particularly relevant to trust companies are safe and sound financial intermediaries, and fair dealing intermediaries.  As we design our regulatory and supervisory framework to achieve these objectives, we bear in mind that our approach should be risk-focused, stakeholder-reliant, and business-friendly.    

14   Recognising that the primary risk of the trust industry is reputational risk, we will focus our attention on the fit and properness of persons operating in the industry and the industry's observance of anti-money laundering requirements.   

15   The regulatory framework will place onus on the trust company's resident managers and director to ensure their houses are in order. We expect the resident managers and director of the trust company to be primarily responsible for prudential soundness and professional market conduct, and to put in place appropriate internal controls and compliance structures. In addition, the directors and managers will also be expected to ensure that their staff are properly trained and managed.  The trust company's external auditors are also under a duty to report to MAS if they detect non-compliance or fraud. By placing responsibility for good corporate governance on the trust company's stakeholders, we minimise the need to interfere with the company's business decisions.

16   Another principle that guided us when creating the new framework is to be business-friendly.  It is not MAS' intention to impair the competitiveness and dynamism of individual institutions and Singapore's financial sector.  We took into account the business and operational concerns of trust companies, through extensive industry consultation, and sought to craft regulations that serve supervisory goals and do not extend beyond.  We hope to pre-empt implementation problems, minimise unintended consequences and foster better industry understanding and support. This is to avoid unnecessarily intrusion into commercial space and to keep compliance cost to what is necessary to achieve our objectives.  

IMPLEMENTATION ISSUES

17   The Trust Companies Act will become effective shortly after the final Regulations, Notices and Guidelines are published. We expect this to be in December or early next year. 

18   There will be a transition period of four months.  These four months will be a grace period for trust companies to submit applications.  The former Trust Companies Act will be repealed at the beginning of the transition period, and the Accounting and Corporate Regulatory Authority will cease to regulate trust companies.

19   We will have a small team responsible for trust companies.  This team will be responsible for licensing, approvals, exemptions, and supervision under the Trust Companies Act. 

20   As in other areas of supervision, MAS will use a variety of tools, including off-site review, on-site inspections and company visits. 

21   In particular, for on-site inspections, MAS could either conduct a full-scope inspection or a thematic inspection on the trust company.  A full-scope inspection will cover a company's compliance with the whole Act, while a thematic inspection will cover only a specific area. As part of our risk-focused approach, we will pay our attention to companies and areas that pose the larger risks.   

DEVELOPMENT OF TALENT

22   As our relatively young trust services industry is expected to grow rapidly, there is a need to develop a strong talent pool to support this growth. Very specialised skills are needed in this industry, and we have received feedback that there is currently a shortage of qualified professionals.  In this regard, STEP's Trust and Estate Practitioners diploma is already well recognised.  I understand that at present there are about 120 persons in Singapore with this diploma or working towards this diploma. STEP's tie-up with the National University of Singapore to introduce a course on trust practice for law students will also help develop the talent pool. We encourage more educational collaboration by the industry, both with academia as well as other financial training providers. 

23   We also urge the industry to continue to lend strong support to the Financial Industry Competency Standards initiative. For our overseas guests, this initiative was launched recently to raise the professional standards of Singapore's financial sector workforce and training providers by addressing competency standards. It will apply to the entire financial services industry, from professional to operational, retail and wholesale personnel.The standards are developed by industry for industry, and are aligned with best practices in leading financial centres. The standards for trust administration, and trust and estate planning are scheduled for implementation in 2006. 

24   As an example of MAS' partnership with industry for the growth of the financial sector, MAS directly supports the development of training. Over the last two years, the Financial Training Scheme under the Financial Sector Development Fund has co-funded a wide range of technical training programmes on trust administration, and trust and estate planning, including the STEP foundation certificate and diploma programmes.

CONCLUSION

26   I would like to close by thanking many of you for your helpful inputs during our public consultation on new legislation, draft regulations, notices and guidelines.  We are confident that the new regulatory and supervisory framework together with good corporate governance on the part of industry players will ensure high standards of probity, professionalism and good business conduct in the trust services industry here, and contribute to Singapore's growth as a trust jurisdiction.  We welcome your continued feedback to enhance and keep up-to-date the regulatory framework. 

27   MAS recognises the good work that STEP has done to provide professional education, training, representation, and networking opportunities for its members. We congratulate STEP for organising this conference here, and wish all of you fruitful and rewarding discussions. 

Thank you.