1. The Fiduciary Services Regulatory Codes Industry Briefing John Aspden Chief Executive Financial Supervision Commission 23 November 2004

2. Introduction Fiduciary business – the perceived risks The Edwards Review – 1998 Introduction of CSP regulation – 2000 TSP regime builds on the existing CSP framework

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

4. The Stikeman Elliott Review Undertaken at the request of industry Stikeman Elliott were nominated by industry Remit agreed with the Professional Bodies Comparative benchmarking approach Detailed report on identified issues Outcomes agreed with professional bodies Amendments to Bill and Codes reflect the agreed outcomes

5. The Statutory Framework Fiduciary Services Bill 2004 Fiduciaries (General Requirements) Regulatory Code Fiduciaries (Clients’ Money and Trust Money) Regulatory Code

6. The Fiduciary Services Bill 2004 Extends Corporate Service Providers Act 2000 to TSPs First Reading, House of Keys – June 2004 Second Reading - October 2004 Clauses – November 2004 In force - end Q1 2005?

7. 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), CSPA Regulated activity - Schedule 1, CSPA

8. New Exemptions Other regulated businesses Private trust companies Court appointed trustees Personal representatives Testamentary trusts with an Island connection Trust administration for a licenceholder

9. The General Requirements Code Consolidated Code for CSP and TSP CSP provisions materially unchanged TSP provisions revised to address issues raised in consultation and SE Review Licenceholders carrying on CSP and TSP business will be treated as one business

10. 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 accordingly Existing, 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

11. Classes and Categories of Licence 2 classes – CSP and TSP – can hold either or both Cat 1 and Cat 2 CSP – unchanged Category 1 TSP – “approved” trust corporations (Trustee Act 1961, s.65A ) Category 2 TSP – any regulated activity except acting as an ATC Category 3 TSP – individual acting as trustee or protector only

12. TSP Category 1 (“ATCs”) Same financial resources requirement as Cat 2 TSP Enhanced COMPETENCE test Detailed proposals in forthcoming Licensing Policy Consultation Transitional arrangements for existing ATCs

13. 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

14. 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

15. 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

16. The Clients’ and Trust Money Code Consolidated clients’ money code for CSPs and TSPs Trust money (para.4) – trust assets held in cash Duty to segregate trust money Best practice – separate accounts for each trust Clients’ account can be used if this is impractical Controls and reconciliations

17. 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 shortly Consultation periods will overlap Licensing Policy is guidance – allows greater flexibility

18. Licensing Issues Applications determined by the Board of Commissioners at a formal hearing. Applicants and Board members receive papers 14 days in advance Opportunity to attend and make representations The Commission may to defer making a decision for a reasonable time Right of appeal

19. Proposed Timetable Act in force end Q1 2005 Application process “open” Q2 2005 3 month application period Transitional provisions as for CSPs Applications dealt with in order of receipt First licences issued Q4 2005

20. Questions? John Aspden Chief Executive Financial Supervision Commission 23 November 2004