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The Fiduciary Services Regulatory Codes

The Fiduciary Services Regulatory Codes. Industry Briefing John Aspden Chief Executive Financial Supervision Commission 23 November 2004. Introduction. Fiduciary business – the perceived risks The Edwards Review – 1998 Introduction of CSP regulation – 2000

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The Fiduciary Services Regulatory Codes

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  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 (CSP+TSP) • 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 TSP’s 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

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