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Proposed uniform scheme for the regulation of trustee corporations
2. Trustee Company Services
2.1. EXISTING SCHEME
Background
2.1.1. Traditionally, only a natural person could discharge the role of a personal trustee, in the sense of acting as an executor or administrator appointed by a will. Trustees owe fiduciary duties to the assets they administer, and can be personally liable for default. For this reason, a body corporate having limited liability could not act as a personal trustee. Governments enacted legislation to license trustee companies to provide an alternative to natural trustees, and to allow for a long term trust, such as a charitable trust, to be established.
2.1.2. Governments generally conferred trustee company status only on large public companies with a broad spread of ownership. These companies were thought to be best able to ensure the proper administration of trusts because of their resources and stability. While trustee companies were permitted to offer trustee services for profit, in other respects a trustee company was subject to the law governing personal trustees. Trustee companies traditionally specialised in personal trust work and adopted a conservative approach.
2.1.3. Today, the market has undergone significant change. A lesser proportion of the business of trustee companies is personal trust work, and trustee companies offer a range of other financial services, such as insurance, superannuation and estate planning.
Current licensing scheme
2.1.4. Trustee companies are subject to State and Territory based licensing legislation. While there are some differences between the Acts in each jurisdiction, they typically set out the duties and responsibilities of trustee companies in their role as trustee, enable trustee companies to establish common funds, regulate fees, and, in some states, provide for controls on the ownership and exposure to debt of trustee companies. Once licensed, trustee companies have to submit regular financial returns to Government agencies.
2.1.5. The industry is relatively small, with most trustee companies belonging to a single industry body, the Trustee Corporations Association.
2.2. OBJECTS OF THE DRAFT TRUSTEE CORPORATIONS BILL 2001
2.2.1. The Trustee Corporations (Name of State/Territory) Bill offers a suggested scheme for the future regulation of the industry (the draft Bill is referred to in this paper as the Trustee Corporations Bill). It is not intended to preclude consideration of whether other options for the future regulation of the industry, including deregulation, would serve the public interest.
2.2.2. The Trustee Corporations Bill 2001 has the following objects:
- to permit licensed corporations to act as trustees, executors and administrators with powers and duties similar to those of natural persons undertaking the same roles;
- to provide for and enforce a uniform national system for the licensing and prudential supervision of trustee corporations ; and
- to provide for the mutual recognition of trustee company licences in all Australian jurisdictions.
2.2.3. The Bill would permit licensed corporations to act as executor, trustee and administrator to the public under regulated conditions, in order to deliver public benefits. These benefits include:
- the availability in the marketplace of perpetual or long term trust services;
- competition with natural person trustees such as solicitors and accountants, and with public sector corporate trustees, to improve choice, quality and cost of services to the consumer; and
- the protection of consumers, including people with disabilities and children, who rely on trustee and administrator services. Consumer protection is particularly important in the market for personal trustee services, because of market imperfections. This issue is discussed in further detail at 3.1.12 below.
2.2.4. The Bill would be enacted in each State and Territory which agreed to participate in the scheme, to provide national uniformity.
2.3. SUMMARY OF THE BILL
2.3.1. The Bill provides for any body corporate to be licensed as a trustee corporation and to act as executor, trustee and administrator, exercising the powers of an individual trustee. The Bill provides for the corporate governance of these corporations, with requirements as to directors, accounts, and other matters.
2.3.2. The Bill provides for trustee corporations to be licensed and to be required to comply with prudential standards, to be fixed on the advice of an appropriate prudential adviser. It is envisaged that the scheme would be based on uniform legislation in each State and Territory and would operate on a national basis. Any corporation which could comply with licensing requirements in any jurisdiction could apply to be a trustee corporation, and operate throughout Australia. Licences would not be restricted to particular categories of corporation, although licensing standards which would be set under the Bill could act as a barrier to the licensing of some bodies corporate. This paper considers below at chapter 4.2 what the prudential requirements of the industry should be.
QUESTIONS
Are there other aspects of the role of trustee corporations that are relevant to the review?
Are the public benefits offered by personal trust services correctly identified? Are there other benefits?
Does the draft Bill correctly state the objects of the regulation of personal trust services provided by trustee corporations?
Are there any other objects which the draft Bill should adopt?
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