Monetary Authority of Singapore
Second Reading Speech by Mr Tharman Shanmugaratnam, Minster for Education and Deputy Chairman, Monetary Authority of Singapore
Mr Speaker Sir, on behalf of the Senior Minister, I beg to move, That the Bill be now read a second time.
2 Trust services are growing in importance globally, as part of the wide array of wealth management services offered by financial institutions. Private bankers often advise their clients to use trusts for investment and wealth planning purposes, such as for succession planning.
3 In Singapore, the trust services industry has expanded steadily in recent years along with the robust growth in the private banking and wealth management industries. Singapore's standing as an internationally reputable financial centre has prompted global players to locate their trust administration business here.
4 There is currently no single set of internationally endorsed standards for the regulation of trust companies. But 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 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 recently expressed its concern that the migration of trust companies to unregulated jurisdictions presents significant risks.
5 MAS has also received feedback from reputable 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. It will give Singapore a premium.
6 In other words, as in all other areas in the financial industry, good regulation promotes good growth.
7 Singapore does have a framework for regulating trust companies. However, no major changes have been made to the Trust Companies Act over the last two decades.
8 For the reasons I have just set out, MAS and the Ministry of Finance consider it timely to update and strengthen the regulatory framework for trust companies operating in Singapore. Regulation of trust companies will be transferred from the Accounting and Corporate Regulatory Authority to MAS. This transfer of responsibilities will allow a single regulator to supervise the complementary activities of trust services, private banking and wealth management.
9 MAS consulted the industry and public on the proposed new framework for trust companies and a draft of the Bill. We have considered and incorporated the comments received, where appropriate, into the Bill. MAS will also be holding consultations on the regulations, notices and guidelines required to implement the new regime for trust companies.
SCOPE OF TRUST COMPANIES BILL, TRUSTEES ACT AND BUSINESS TRUSTS ACT
10 It may be useful to explain how the Trust Companies Bill relates to the Trustees Act and Business Trusts Act.
11 The Trustees Act is the centerpiece of trust law in Singapore. It provides the basic legislative framework for trustees of trusts established under Singapore law. The Trustees Act sets out the default powers, duties and obligations of trustees, the powers of the Courts and matters relating to appointment and discharge of trustees. The Trustees Act was extensively reviewed by the Ministry of Law and the MAS and amended by Parliament in October last year, to bring it in line with developments in trust law and the use of trusts in financial and business transactions.
12 The Trust Companies Bill likewise seeks to update and modernise the legislative and regulatory framework for companies that are in the business of providing trust services. The Bill applies to companies providing trust services in Singapore regardless of whether the trusts are established under Singapore law or other law. The Bill defines the business of trust services as comprising any of the activities of creating a trust, acting as a trustee, arranging for another person to act as a trustee, or providing trust administration services. For example, giving advice on how to set up a trust, and managing and distributing trust assets, are activities that would fall under the Bill. A company providing trust services in Singapore must adhere to the standards of governance set out in the Bill and the accompanying supervisory framework, just as financial companies providing wealth management or private banking services are required to meet appropriate standards of conduct.
13 On the other hand, the Business Trusts Act, which Parliament enacted in October 2004, introduced a specific governance framework for business trusts. Business trusts have the distinguishing feature of being engaged in the management of an operating business, for example infrastructure services. The Trust Companies Bill will not apply to trustees of business trusts.
14 Mr Speaker Sir, I will now go through the key provisions of the Trust Companies Bill.
KEY MEASURES UNDER THE NEW REGULATORY FRAMEWORK AND BILL
Mandatory Licensing
15 A key policy change in the new framework is the shift from voluntary registration to mandatory licensing. Under the current Trust Companies Act, registration of trust companies is voluntary. Under the new regulatory framework, licensing will be mandatory for anyone engaging in trust business. Mandatory licensing will foster high standards of probity, professionalism and business conduct across the entire industry.
Exemptions
16 As the trust business is defined broadly, however, the Bill and the Regulations that will accompany it will contain exemptions from licensing, or lighter regulation, for certain companies. The exemptions will be granted where the risks of abuse or inadequate professional standards are low, or to avoid duplication with other regulations. For example, private banks, which are regulated by MAS, will be allowed to carry on trust business without needing an additional licence as long as they do not act as trustee themselves, advise on trusts or make significant decisions affecting a trust. They can, for example, arrange for a third party to act as trustee, explain the features of a trust, and facilitate the execution and completion of relevant documents, as part of their private banking services without requiring a licence under the Trust Companies Act.
17 MAS will also work out exemptions from licensing or lighter regulation for other entities in the forthcoming Regulations, such as:
- lawyers and accountants;
- private trust companies, which act as trustees for a single private group, typically a high net worth family; and
- overseas persons visiting Singapore.
18 The enabling provisions for these exemptions are provided in the Bill, but the scope of the exemptions will be set out in the forthcoming Regulations. The Regulations will include conditions that will apply on exempted entities, the limitations on the types and extent of trust services they can conduct, and how due diligence with regard to anti-money laundering has to be conducted. MAS will consult the industry and public on these Regulations and consider their comments before finalising them.
Exclusions
19 The Bill will also provide exclusions for entities that technically fall within the scope of the Bill, such as advisors on wills, executors and administrators of the estates of deceased persons, bare trustees, and managers and trustees of business trusts. The Bill is not intended to regulate these entities, as the trusts involved are not actively used for investment and wealth planning purposes.
Requirements for Resident Managers
20 The Trust Companies Bill requires licensed trust companies to obtain MAS' approval for the appointment of their resident managers. MAS intends to set out in Regulations that a licensed trust company have at least two resident managers. Requiring the managers to live and work in Singapore ensures that the persons managing the affairs of the company are in the position to exercise effective day-to-day control of the business. The requirement for at least two managers is also a useful check against a single individual engaging in undetected illicit activity.
MAS Approval for Directors and Significant Shareholders
21 The Bill also requires a licensed trust company to obtain MAS' approval for the appointment of directors and for persons and entities wishing to become significant shareholders, since they are in a position to influence the management of the licensed trust company.
Financial Soundness Requirements
22 The Bill gives MAS powers to prescribe minimum financial requirements for a licensed trust company. The aim is to ensure that each licensed trust company is of sound financial standing, with sufficient capital to operate smoothly and to serve as cushion against unforeseen events. It should also have adequate insurance to cover negligence claims. This is just as we have prudential requirements for other providers of financial services such as fund managers. Licensed fund managers have to satisfy a minimum capital requirement of $250,000 if they conduct fund management on behalf of accredited investors. MAS is considering similar capital requirements for licensed trust companies. We will decide on the financial soundness requirements for licensed trust companies after consultation on the Regulations.
Supervisory Powers
23 The Bill will give MAS supervisory powers over licensed trust companies similar to those it has over other financial institutions. MAS will require licensed trust companies to submit annual audited accounts and other information for supervisory review. MAS will conduct regular inspections and have powers to investigate when needed. MAS will also have powers to restrict the operations of a licensed trust company, revoke its licence, or petition the Court for its winding-up.
Anti-money Laundering and Countering the Financing of Terrorism
24 MAS will set out in a notice the measures that licensed trust companies have to take to counter money laundering and terrorist financing. The measures would be similar to those imposed on other financial institutions, which are in line with recommendations by the Financial Action Task Force.
Systems and Processes for Good Business Conduct
25 MAS will also require trust companies to install systems and processes for good business conduct in areas such as record-keeping, compliance with regulations, complaints-handling and continuing professional development.
CONCLUSION
26 The new regime for trust companies is an important new piece in the framework for regulation of financial services in Singapore. It will position Singapore as a leading global trust domicile, and contribute to the growth of the private banking industry. It will add to our reputation as a sound, well-regulated and internationally competitive financial centre.
27 Sir, I beg to move.