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In brief

The Hong Kong Monetary Authority (HKMA) has released a Consultation Paper on Enhancing the Regulation and Supervision of Trust Business (Consultation Paper). The HKMA plans to introduce a Code of Practice for Trust Business (Code) to be incorporated into a new Supervisory Policy Manual (SPM) applicable to all authorized institutions (AIs) and local subsidiaries of locally incorporated AIs (AI subsidiaries) conducting trust business in Hong Kong. The aim of the Code is to enhance protection of client assets held on trust and better align with international standards and practices to promote the fair treatment of customers and a customer-centric culture in the trust business. We discuss some of the HKMA’s proposals and their potential application.



The HKMA has released its Consultation Paper[1] and proposed Code[2] with the aim of addressing limitations and filling gaps in the current regulatory regime for trust business activities. After considering the approach adopted in other markets and relevant local and international standards, the HKMA proposes the introduction of the Code to strengthen the level of protection for customers using trust services, especially where the trusts are used for wealth management purposes.

Whilst there is a certain degree of oversight, the existing regulation of trust businesses in Hong Kong is fragmented and there is currently no overarching code / guidelines that set out the specific conduct requirements applicable to trust businesses in Hong Kong.  The current regime includes:

      • HKMA: Supervision of Hong Kong incorporated AIs and their subsidiaries on a consolidated basis
      • Insurance Authority: Indirect supervision of non-regulated entities (including trustees and custodians) within an authorized insurer group
      • Mandatory Provident Fund Schemes Authority (MPFA): Oversight of trustees of Mandatory Provident Fund (MPF) schemes
      • Registrar of Companies: Direct supervision over licensed trust service providers under the Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) Ordinance (AMLO)
      • Securities and Futures Commission (SFC): Proposed (though not yet implemented) direct oversight and regulation of top-level trustees and custodians of SFC-authorised collective investment schemes (CIS) (subject to certain exemptions)

Am I impacted?

The Code is proposed to apply to all AIs conducting trust business in Hong Kong. Locally incorporated AIs should also ensure that their AI subsidiaries undertake trust business activities in line with the Code. Other trustees undertaking trust business within Hong Kong are encouraged to adopt the Code to the extent applicable.[3]

For the purposes of the Code, a “trustee” is defined as meaning:

…a person as follows that conducts trust business –

  1. an individual carrying on business as a sole proprietor;
  2. a partnership; or
  3. a corporation.

This term captures a relevant party by whatever name called that performs the functions of a trustee.[4]

A “trust” is defined as meaning:

…an obligation imposed on a person to hold or control and administer assets for the benefit of others (i.e. the beneficiaries) or for a specified purpose (e.g. charitable purpose, wills or estate planning). [5]

The definition of “trust business” used in the Code covers the following services by a trustee:

  1. setting up a trust;
  2. acting as trustee for a trust;
  3. arranging for any person to act as trustee for a trust;
  4. managing the assets held on trust;
  5. administration services for a trust; and/or
  6. eventual transfer of assets to beneficiaries.[6]

Taken in combination, the definitions are very broad and, trust business is not confined to services involving fiduciary duties. For example, a wealth planning manager employed by the private banking arm of an AI who regularly meets with clients to discuss, or advises on the setting up of a trust, arranges an offshore entity to act as trustee for a trust, or otherwise provides or assists in the general administration services for a trust, may potentially be caught under the definition.

The HKMA has noted that the Code will not be legally enforceable and trustees will need to continue to observe their existing statutory and regulatory obligations.[7] Any breach of the Code will impact the HKMA’s assessment of the ongoing fitness and propriety of the trustee, whether the AI continues to satisfy the minimum criteria under the Banking Ordinance and/or the fitness and propriety of the chief executive (including alternate chief executives), directors and shareholder controllers of an AI.[8] Whilst the impact on an AI is potentially severe, penalties for any breach by a non-AI or AI subsidiary trust company voluntarily choosing to adhere to the Code are not clearly defined within the Consultation Paper, and greater clarity will be needed to ensure that there is a level playing field.

Am I exempt?

The following groups are proposed to be exempt from the application of the Code:

      • Depositaries licensed or registered for the proposed RA13 under Schedule 5 to the Securities and Futures Ordinance (SFO) when RA13 comes into effect insofar as the trust services provided relate to a CIS authorized by the SFC under section 104 of the SFO and form part of the regulated functions for RA13 under the SFO.
      • Companies approved by the MPFA under section 20 of the Mandatory Provident Fund Schemes Ordinance insofar as the trust services provided relate to MPF products listed in more detail in section 1.4.2 of the Code
      • Accountancy firms and law firms[9]

It is not clear from the Consultation Paper whether the HKMA is seeking that depositaries would need to comply with the Code prior to the implementation of the proposed RA13, and clarification may be required on this point.

Whilst the Consultation Paper states that the Code will not apply to an AI or AI subsidiary that does not provide a trust service directly and merely introduces or refers another trustee to its customers,[10] this exemption is not currently clearly specified in the Code itself. The HKMA has also proposed to introduce extensive due diligence requirements that will need to be completed in such circumstances. The due diligence requirements include:

      • Taking into account whether the proposed trustee follows the Code, its track record, reputation and standing, financial soundness, operational capability and capacity, and relevant internal controls and practices
      • Where the trustee is outside of Hong Kong, being satisfied that the arrangement will not lead to reduced protection for the customers
      • Having an agreement in place with the trustee on how to handle incidents, notification to customers and safeguarding their interests.

Proposed Code requirements

The HKMA has proposed the Code will impose conduct requirements across six General Principles (Principles) but will not include or address:

      • Trust-specific prudential requirements (as these may already exist and be drawn from other sources)[11]
      • AML or CTF requirements addressed in the AMLO or other statutory and regulatory requirements[12]

The Principles are supported by underlying standards of conduct that demonstrate how each Principle is discharged in practice. The Principles are consistent with generally understood trust concepts but are underpinned by some important differences in definitions and example obligations that may act to expand the concept of trustees and their obligations under general trust law.

General Principles

The six Principles and their key requirements are:

Principle Key Requirements
Principle 1: Fairness, honesty and integrity. A trustee should act honestly, fairly, and with integrity in conducting its trust business.
Principle 2: Due skill, care and diligence. A trustee, in conducting its trust business, should act with due skill, care and diligence, and in the interests of its customers. A trustee should ensure that the entity through which trust business is conducted and all relevant staff are fit and proper to perform their roles and functions.
Principle 3: Management and control of trust assets. A trustee should exercise due care in understanding, managing and controlling all assets held within the trust in full conformity with its fiduciary obligations.
Principle 4: Corporate governance and internal controls. A trustee should establish a proper corporate governance structure and implement adequate internal controls and risk management systems to ensure that its trust business is effectively managed.
Principle 5: Compliance with legal and regulatory requirements and standards. A trustee should comply with relevant legal and regulatory requirements and standards applicable to the conduct of its trust business activities.
Principle 6: Co-operation with regulators. A trustee should deal with relevant regulators in an open and co-operative manner.


Compliance requirements

The Code will require the establishment of a compliance function that should be independent of all business and operational functions and reports to senior management directly. A compliance program that incorporates a regular independent review of the trust business activities and operations will also need to be established.

Proposed list of trust companies, voluntary opt in and annual declaration

The HKMA is contemplating publishing and maintaining a list of AIs and AI subsidiaries that conduct trust business in Hong Kong. In addition the HKMA has proposed the inclusion of a dedicated section setting out other trustee companies conducting trust business in Hong Kong (other than accountants and lawyers) that have submitted a declaration to the HKMA confirming they observe the Code and  have agreed to have their names published for access by members of the public. It is not currently clear from the Consultation Paper how the declaration process would operate and if/how companies that are not currently subject to the jurisdiction of the HKMA would become regulated by the HKMA. Clarification will be required on these points.

The HKMA has also proposed that AIs, AI subsidiaries and any other trust companies published on the list will need to provide an annual declaration of compliance with the Code signed by the relevant business head(s) and the Head of Compliance or Head of an equivalent function.[13] Matters including the impact of a failure to provide this declaration and potential penalties for any inaccuracy in the declaration of compliance with the Code are not currently addressed in the Consultation Paper and may require further clarification.

Implementation timeline

The HKMA has proposed that AIs and AI subsidiaries should comply with the finalised Code as soon as practicable, but not later than six months from the time it is issued. No timeline has been determined for other trust companies that choose to voluntarily comply with the Code.[14]

Next steps

This public consultation is important as it provides an opportunity to help shape the implementation of the Code and the trust business regime. AIs and AI subsidiaries should undertake an internal assessment to determine the potential application of the Code and its possible effects, including:

      • How any existing trust business may be impacted by the Code
      • Whether any existing business activity that is not currently considered a trust activity may be caught by the Code’s definition of “trust business”
      • The extent to which the Code’s requirements may necessitate the implementation of new or amended compliance processes and procedures
      • Whether existing contractual and introduction arrangements would meet the proposed due diligence requirements

In addition to the above, non-AI trust business providers may wish to consider the threshold questions of costs/benefits of voluntarily adhering to the Code.

Submissions in response to the Consultation Paper are due by 9 October 2020. If you would like to collaborate on a submission, or have any questions on how the Code may impact your business, please liaise with your usual contact at Baker McKenzie or the lawyers listed in this client alert.

[3] Paragraph 25 of the Consultation Paper.

[4] Section 1.2.1 of the Code.

[5] Section 1.2.2 of the Code.

[6] Section 1.2.3 of the Code.

[7] Paragraph 23 of the Consultation Paper.

[8] Section 1.5.3 of the Code.

[9] Section 1.4 of the Code.

[10] Paragraph 29 of the Consultation Paper.

[11] Paragraph 20 of the Consultation Paper.

[12] Paragraph 21 of the Consultation Paper.

[13] Paragraph 105 of the Consultation Paper.

[14] Paragraph 112 of the Consultation Paper.


Karen Man is a partner in Baker McKenzie’s Financial Services group, leading the non-contentious Financial Services Regulatory practice. Her clients include global, Chinese and local banks, fund managers, brokers/dealers, money service operators and fintech firms. Karen is admitted to practice in Hong Kong, the UK, and Australia.


Sophia Man is a partner in Baker McKenzie’s Financial Services Group. She has over 17 years’ experience in advising trustees, fund managers, custodians, administrators and employers on fund formation, restructuring, investment and regulatory matters. Sophia is a member of the Retirement Schemes Committee of the Hong Kong Law Society.


Pierre Chan is a partner in Baker McKenzie's Hong Kong office. He advises multinational companies, financial institutions, insurance companies as well as investment funds on income tax and stamp duty issues. He also advises wealthy families in relation to their succession planning. Over the years, Pierre has advised and represented taxpayers in relation to various major tax disputes in Hong Kong.


Grace Fung is a partner in Baker McKenzie’s Financial Services group.


Lisa Ma is an associate in Baker McKenzie Hong Kong office.