New TCSP regime in Hong Kong. What does it mean?
The impetus for the new regime came from anti-money-laundering efforts and the new regulations fall under AMLO, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.
That marks a big change for Hong Kong’s TCSPs. Previously, the burden of regulation in Hong Kong was light. Trust companies were obligated to register with the Companies Registry’s Registrar of Trustees, but other than this were not directly regulated.
Registry and qualification
Now, though, TCSPs will be obligated to register — the difference being that they must now qualify for a license which the Registrar can refuse, based on a Fit and Proper test. After successfully gaining a license to provide trust services in Hong Kong, TCSPs must comply with statutory record-keeping and due diligence requirements under Schedule 2 of AMLO.
The licensing requirements mainly apply to new companies; older businesses that were carrying on a trust or companies services business immediately prior to March this year in Hong Kong and held a valid business registration certificate are deemed to have a license, on the basis that most of them were already engaging in Anti-Money-Laundering and Know Your Customer
Who is subject to a Fit and Proper test?
Unless you can show you’re exempt, you are subject to a Fit and Proper test if you:
- Are an individual applicant, both you, and each ultimate owner
- Are a partnership or corporation, each partner or director and each ultimate owner
In determining whether you pass the test, the Registrar will obviously consider any record of convictions, especially for relevant offences, as well as any record of noncompliance or bankruptcy. Additionally, professional background is scrutinized with particular attention to whether management have sufficient experience.
Exemptions from licensing
Some individuals and organizations are exempt from licensing requirements, including the Fit and Proper test. These are authorized institutions, as defined in the Banking Ordinance, Cap. 155; a licensed corporation, as defined by the Securities and Futures Ordinance, Cap. 571; and accounting and legal professionals.
What does this mean for Hong Kong’s trust sector?
So far, there have been no major changes on the ground. Faced with the prospect of regulatory oversight, some businesses that had been on the periphery of the trust industry decided to cut their ties with it altogether. Others, including Legacy, made sure they were among the first to get licenses and thus demonstrate willingness to take part in a more regulated trust industry.
As our CEO Vincent Chok observes:
"TCSP licensing regime has been long awaited by all professional industry participants in Hong Kong. These concise statutory requirements have helped to create a level playing field and, in the long run, will further promote prudence and high service standards amongst TCSPs. Moreover, it ensures that Hong Kong as a global financial center is aligned with international best practices in this space. It is a good step in the right direction."