HK's recently amended trust law steps into the modern era, creating an opportunity for the city to become a regional player in the administration of trusts. But with multiple hurdles to surmount, gaining loyalty won't be easy. Oswald Chan reports.

The Trust Law (Amendment) Bill 2013, which was gazetted in February, passed by the Legislative Council in July, is hailed as the salvation of the city's trust administration industry. The new amendment surely modernizes trust law. Effective on Dec 1, the responsibilities and powers of trustees engaged in trust administration have been expanded.

Trustees are granted greater authority to appoint agents, nominees and custodians; to insure against loss from any event and equally important, to be paid remuneration.

The amendment also provides statutory provisions for the protection of beneficiaries, who will have the right to remove trustees through a simple process without having to go to court.

Outdated rules that set time limits on the duration of trusts have been abolished under the amendment, making it possible even to establish trusts in perpetuity. That amendment facilitates wealth transmission from one generation to the next and that makes Hong Kong more attractive for trusts.

Under current Singapore law, trusts may last for 125 years. UK law permits trusts up to 100 years. Trusts in the Cayman Islands stretch to 150 years, and 360 years in the British Virgin Islands.

"The modernization of our trust law is a major initiative to strengthen the competitiveness of our trust services industry and consolidate our status as an international asset management center," the Secretary for Financial Services and the Treasury K.C. Chan says.

"The bill will buttress the competitiveness of Hong Kong's trust services industry and attract settlers to establish trusts in Hong Kong," Chan says.

The latest survey by the Hong Kong Trustees' Association (HKTA), showed that by the end of 2011, Hong Kong's trust industry held HK$2.6 trillion in assets.

The Hong Kong Trustee Ordinance (HKTO), enacted in 1934, and modeled on the UK Trustee Act, 1925, had never been amended or even reviewed prior to the recent amendments. Until then it had come to be regarded as outmoded three-quarters of a century after being implemented.

The amendments came about, after the HKTA and the Society of Trust and Estate Practitioners (STEP), Hong Kong Branch formed a lobby, the Joint Committee on Trust Law Reform to push reform.

Long-term vision

Competition in the global trust business has intensified. Major Common Law jurisdictions such as the UK and Singapore reformed their trust laws to attract more trust-related businesses. The UK reformed its trust law by introducing the Trustee Act 2000, followed by Singapore in 2004.

"Despite Hong Kong's standing as a major financial center, the focus as a trust and fund services center has been lacking. It is crucial, therefore, for the Hong Kong government to pursue a long-term vision for developing and promoting the trust industry, thus cementing Hong Kong's position as a financial services center in all aspects," HKTA Chairman Lau Ka-shi says.

Hong Kong has several advantages. Overseas investors are well-acquainted with its professional work force. It's an affluent city where people like to invest. It is close to the mainland, where there are billionaires seeking to set up trusts.

There are however, several serious impediments that need to be remedied if the city is to stand tall, in the trust industry. In the city's first research report on the Hong Kong trust industry released in June, by accounting firm KPMG and HKTA, three major hurdles were identified.

The regulatory framework governing Hong Kong's trust industry is fragmentary. There is no single authority to regulate industry players. The trust industry extends over different aspects of the broader financial services industry, and there are several overlapping jurisdictions.

Effectively, there are "multiple" regulators. The Mandatory Provident Fund Schemes Authority (MPFA), the Securities and Futures Commission (SFC), the Hong Kong Monetary Authority (HKMA) and the Office of the Commissioner of Insurance (OCI) all regulate trusts. The question of where jurisdiction falls, depends on how financial products and services are sold.

Lack of practitioners

There is a critical shortage of experienced professionals in the trust-management field in Hong Kong. Most started their careers in accounting or in the legal field, and have switched careers into trust management. Trust administration per se is not an area of specialization taught at Hong Kong's universities. Trust administrators are responsible for dealing with complex risks and fiduciary duties, so the absence of a deep talent pool is an impediment to the industry's development.

"Hong Kong's trust industry lacks an adequate supply of qualified trust industry practitioners which needs to be addressed," says John Wong, Hong Kong & China National Leader, Personal Financial Services Practice at PricewaterhouseCoopers (PwC).

Exacerbating the lack of a sizable talent pool is the fact that there is no licensing regime for personnel working in trusts, as in other sectors of the financial services industry: accountants, lawyers, credit rating managers, asset managers.

Then, there's the question of competition: Singapore, the Cayman Islands, Jersey, the British Virgin Islands, Bermuda and Luxembourg, all heavily invested in attracting trusts and are fierce competitors in the market. The absence of modern trust law in Hong Kong prior to the Trust Law (Amendment) Bill 2013 in July, prompted many local trustees to go offshore to establish trusts. Many trusts administrated in Hong Kong are not governed by Hong Kong law.

In the KPMG and HKTA report, just 31 percent of trustees established trusts they administered here. The rest prefer offshore jurisdictions.

"The Hong Kong government and the industry must capitalize on the recent amendment and its robust private banking services sector to promote more adoption of Hong Kong as a jurisdiction for trust administration," PwC's Wong tells China Daily.

"When more global clients choose Hong Kong as a trust jurisdiction, it will boost demand for local trust administration services. Greater market recognition will attract more people to the industry, and local universities may introduce more academic and training in trust administration. The virtuous circle then sets in - more talents attracted to the industry, then local schools providing relevant training," Wong says.

Contact the writer at oswald@chinadailyhk.com

(HK Edition 09/27/2013 page5)