The Fiduciary Services Regulatory Codes

Industry Briefing

John AspdenChief Executive

Financial Supervision Commission23 November 2004

Introduction

Fiduciary business – the perceived risksThe Edwards Review – 1998Introduction of CSP regulation – 2000TSP regime builds on the existing CSP framework

The TSP Consultation Process

Initial consultations – May 2001, Jan. 2002Consultation on draft Bill and Codes - July 2003Stikeman Elliott Review – February 2004Fiduciary Services Bill 2004Further consultation on the Codes – 8 November 2004

The Stikeman Elliott Review

Undertaken at the request of industryStikeman Elliott were nominated by industryRemit agreed with the Professional BodiesComparative benchmarking approachDetailed report on identified issuesOutcomes agreed with professional bodiesAmendments to Bill and Codes reflect the agreed outcomes

The Statutory Framework

Fiduciary Services Bill 2004Fiduciaries (General Requirements) Regulatory CodeFiduciaries (Clients’ Money and Trust Money) Regulatory Code

The Fiduciary Services Bill 2004

Extends Corporate Service Providers Act 2000 to TSPsFirst Reading, House of Keys – June 2004Second Reading - October 2004Clauses – November 2004In force - end Q1 2005?

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), CSPARegulated activity - Schedule 1, CSPA

New Exemptions

Other regulated businesses Private trust companiesCourt appointed trusteesPersonal representativesTestamentary trusts with an Island connectionTrust administration for a licenceholder

The General Requirements Code

Consolidated Code for CSP and TSPCSP provisions materially unchangedTSP provisions revised to address issues raised in consultation and SE ReviewLicenceholders carrying on CSP and TSP business will be treated as one business

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 accordinglyExisting, 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

Classes and Categories of Licence

2 classes – CSP and TSP – can hold either or bothCat 1 and Cat 2 CSP – unchangedCategory 1 TSP – “approved” trust corporations (Trustee Act 1961, s.65A )Category 2 TSP – any regulated activity except acting as an ATCCategory 3 TSP – individual acting as trustee or protector only

TSP Category 1 (“ATCs”)

Same financial resources requirement as Cat 2 TSPEnhanced COMPETENCE testDetailed proposals in forthcoming Licensing Policy ConsultationTransitional arrangements for existing ATCs

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

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

Professional Indemnity Insurance

Appropriate to nature and size of business (para.20)

Aggregate cover: - 2.5 x turnover; or - £500,000

whichever is the higher

Excess not exceeding 3% of turnover

The Clients’ and Trust Money Code

Consolidated clients’ money code for CSPs and TSPsTrust money (para.4) – trust assets held in cashDuty to segregate trust moneyBest practice – separate accounts for each trustClients’ account can be used if this is impracticalControls and reconciliations

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 shortlyConsultation periods will overlapLicensing Policy is guidance – allows greater flexibility

Licensing Issues

Applications determined by the Board of Commissioners at a formal hearing.Applicants and Board members receive papers 14 days in advanceOpportunity to attend and make representationsThe Commission may to defer making a decision for a reasonable timeRight of appeal

Proposed Timetable

Act in force end Q1 2005Application process “open” Q2 20053 month application periodTransitional provisions as for CSPsApplications dealt with in order of receiptFirst licences issued Q4 2005

Questions?

John AspdenChief Executive

Financial Supervision Commission23 November 2004