Wednesday, February 13, 2013
The Trust Law (Amendment) Bill 2013, gazetted on February 8, is aimed at modernizing trust law in Hong Kong by enhancing trustees' default powers while providing for appropriate checks and balances, thereby making trusts administration more effective.
Secretary for Financial Services & the Treasury, Prof KC Chan, said Hong Kong must modernize its trust laws to enhance its status as an international asset-management center. "The bill, if passed, will bolster the competitiveness of Hong Kong's trust services industry and attract settlors to set up trusts in Hong Kong," he said.
At the end of 2011, Hong Kong’s trust industry held assets of an estimated HKD2.6 trillion (USD335bn), and more than 60% of the city’s asset management business originated from funds from non-Hong Kong investors.
Hong Kong trust law is based mainly on common law, supplemented by the Trustee Ordinance and the Perpetuities & Accumulations Ordinance, which have not been substantially reviewed or modified since they were enacted in 1934 and 1970. Some of their provisions are outdated and cannot meet present-day trusts' needs.
Following a review of the Trustee Ordinance and the Perpetuities and Accumulations Ordinance, and in response to the various modernization proposals put forward by the trust industry and recent trust law reform in the United Kingdom and Singapore, the Government conducted public consultations in 2009 and 2012, respectively, on the reform proposals.
The reform package seeks to clarify trustees' duties and powers and better protect beneficiaries' interests. The major proposals would therefore introduce a statutory duty of care on trustees; provide trustees with general powers to appoint agents, nominees and custodians, as well as to insure trust property against risks of loss; allow professional trustees to receive remuneration; provide for a court-free process for the retirement of trustees on beneficiaries' directions; and impose statutory control on exemption clauses that seek to relieve professional trustees from liabilities.
In addition, the bill would also allow settlors to reserve to themselves some limited power; abolish outdated rules against perpetuities and excessive accumulations of income; and relax the market capitalization and dividend requirements for investment in the equity market.
Respondents were generally in support of the legislative proposals, considering that the reformed regime would provide a more robust legal framework facilitating the effective operation of present-day trusts, which is important for enhancing Hong Kong's status as an international asset management center.
The Government has taken into account feedback from the industry and other stakeholders when drawing up the legislative proposals. The bill will be presented to the Legislative Council for first reading on February 20, 2013.