Consultation Document on the Proposed Rules for Trustees and other Fiduciaries

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On the 30th December 2016, the Malta Financial Services Authority (MFSA) issued a consultation document entitled the Proposed Rules for Trustees and other Fiduciaries (MFSA REF: 17-2016) (the “Proposed Rules”). The scope of the Proposed Rules is to give greater legal certainty to the current Code of Conduct in the context of a licence holder’s obligations and generally for increased standardisation in the industry. The Proposed Rules will apply to trustees as well as to administrators of private foundations that are authorised by the MFSA. Unlike the Code of Conduct, the MFSA is proposing that the Proposed Rules will not apply to trustees and other fiduciaries that are not required to be authorised by the MFSA.

The Proposed Rules reproduce and build upon some of the existing obligations found in the current Code of Conduct and also introduce a host of new obligations.

What the Proposed Rules say

Structure of the Proposed Rules. The Proposed Rules are split into three parts, namely:

    1. General requirements applicable to all authorised persons;
    2. Requirements for persons (natural and legal) to act as trustees and mandataries; and
    3. Requirements which shall apply exclusively to body corporates acting as trustees or mandataries.

Firstly there is a welcome whole section dedicated to the criteria that the MFSA take into consideration when assessing an application, thereby ‘codifying’, as it were, the unwritten principles that have until now been applied in practice. New rules have been introduced with respect to the competence requirements for directors of applicant legal organisations and for individual applicants, tied to the IFSP Foundation Certificate on the Law and Administration of Trusts or “equivalent qualification”. This ties up with a new CPD requirement for key members of staff (defined in the glossary, annexed to the Proposed Rules), besides strict training requirements and a requirement for the individuals effectively directing the management of an authorised person to be formally trained in the relevant legal institutes (trusts, foundations or fiduciary mandate, as the case may be). Similarly new proposed rules will also require compliance officers to actually have a specific compliance qualification or “other relevant qualification” or to be in the process of obtaining one, besides having also completed the IFSP course or “other equivalent qualification”.

The Proposed Rules, as expected, also crystallise the requirement of having a compliance officer in place – something which had been mentioned in the previous consultation requirement in the run up to the enactment of Act XI of 2014, and which has been applied in practice by the MFSA as a pre-authorisation requirement, but which was nowhere to be found in the law or Code of Conduct until now.

There is a new written rule requiring Board meetings of an authorised entity to be organised at least quarterly and for a majority of them to be held in Malta.

The new Proposed Rules lay down a number of regulatory disclosures that will become mandatory for authorised persons to make, some of which require the MFSA’s prior approval before being carried out, whilst others lay down a number of ongoing requirements for authorised persons including on the retention of, and location of retained, records, rules regulating the outsourcing of document storage, a formal requirement (as is expected of a professional trustee, administrator or fiduciary mandatary anyway) to have a Business Interruption Recovery Plan (although the Proposed Rules are surprisingly very curt in respect of detail here), as well as rules regulating introducers of business and restricting the freedom of authorised persons in this respect.

The Proposed Rules will understandably impact the existing documentation of authorised persons, not least because of:

    1. The requirements affecting the content of the fiduciary mandate agreement;
    2. The requirement of having a complaints management procedure;
    3. Certain settlor, UBO and founder declarations;
    4. The requirements affecting the content of the LOE with the authorised person’s audit;
    5. The requirement to have a written Complaints Management Procedure;
    6. Certain CDD declarations that the Rules are imposing on authorised persons; and
    7. The requirements on the disclosure of fee arrangements.

The Proposed Rules also encroach on various CDD requirements found in other laws and regulations, including in respect of certain declarations that are required from what the Proposed Rules refer to as “clients”.

New requirements are also being proposed with regard to the extent of Professional Indemnity Insurance Cover that authorised persons are required to have in place (following the amendments carried out by Act XI of 2014), which rules lay down the minimum and maximum amounts of cover that must be in place, besides the type of risks that must be covered.

The Proposed Rules have also codified the proposal that had been made in the past by the MFSA (in the consultation conducted in the run up to the enactment of Act XI of 2014) that trustees and other fiduciaries file an annual compliance return, in addition to that required to be filed in terms of the trustee’s AML-CFT obligations. The proposed form has not been issued yet although a version of it had been circulated in the previous consultation the MFSA had held.

The proposed rules may be accessed in full here.

The MFSA is asking interested parties to submit their comments in writing by the 15th February 2017.

Author: Dr Anthony Cremona

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