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In brief

In July 2020, the Hong Kong Monetary Authority (HKMA) launched a consultation paper foreshadowing a Code of Practice for Trust Business. The code will contain general principles and practical standards to govern the conduct of authorized institutions (AIs, being principally banks) and their subsidiaries that conduct trust business in Hong Kong.

The consultation concluded in October 2020 but the code is yet to be promulgated. We set out below some observations on the draft code, which wealth management industry participants may wish to consider.

  1. Application — The draft code proposed that it will apply to all AIs that conduct trust business in Hong Kong, either themselves or through their subsidiaries. Locally incorporated AIs should ensure their trust company subsidiaries comply with the code. Other entities that conduct trust business in Hong Kong are merely encouraged to adopt the code (the HKMA has no legal authority to regulate non-AIs.) Trustee companies that voluntarily seek to comply with the code will be named in a list published by the HKMA. Questions arise as to how the HKMA will review the list from time to time to ensure the “volunteers” (who are not subject to the HKMA’s supervision given they are not AIs) comply with the code and whether (and if so, to what extent) these volunteers may later be subjected to other supervisory regimes as suggested by the HKMA in the consultation paper, including but not limited to off-site surveillance and on-site reviews by the HKMA.
  2. Definition of “trust business” — The definitions of “trustee” and “trust business” under the draft code are very broad and are not confined to acting as “trustee” in the narrow and usual sense of the word. The term “trust business” covers the provision of management of assets held on trust, administration services for a trust, etc. If these definitions remain widely drafted in the final code, potentially some other industry players may be subject to additional unintended regulatory regimes, e.g., investment managers who are licensed or registered to conduct regulated activities under the Securities and Futures Ordinance may be subject to regulatory requirements imposed by both the Securities and Futures Commission as well as the HKMA.
  3. Definition of “customer” — In the draft code, a “customer” is defined as the settlor and beneficiaries of a trust. However, the term “customer” is used in different parts of the code in different contexts. This gives rise to potential contradictions with general principles of trust law, e.g., the draft code provides that a trustee should treat the interests of customers as paramount but, under trust law principles, a trustee should treat the interests of the beneficiaries as paramount. This creates a conceptual difficulty, especially if the settlor is not a beneficiary under the trust. It is unfortunate that the regulation of the trustee industry is being placed in the hands of an authority that is not experienced in dealing with family trust. It remains to be seen if the language of various parts of the code will be tightened in its final version. 

We expect that the HKMA will review submissions from different stakeholders and consider these issues further before the final code is released. Meanwhile, wealth management industry participants (in particular, AIs and their subsidiaries) should undertake internal assessments to determine the potential application of the code to them and its possible effects.


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

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