Guernsey Fiduciary Rules – new rules for Guernsey licensed fiduciaries
17 April 2020
The Guernsey Financial Services Commission (the "GFSC") has issued new rules setting out the standards to be met by all Guernsey licensed fiduciaries.
The Fiduciary Rules and Guidance, 2020 (the "Fiduciary Rules"), which will come into operation on 31 December 2020, follow consultation with industry last year. They are intended to ensure that the Bailiwick's regulatory regime continues to comply with international standards, particularly the Standard on the Regulation of Trust and Corporate Service Providers issued by the Group of International Finance Centre Supervisors, and that they remain appropriate for the Guernsey market.
The new rules simplify, consolidate and enhance the existing regulatory framework for licensed fiduciaries and, in some areas, are more closely aligned to the Licensees (Conduct of Business) Rules 2016 to ensure consistency for dual-licensees operating across different regimes.
Scope of the Fiduciary Rules
The Fiduciary Rules apply to all fiduciary businesses holding a licence under the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000 (as amended) (the "Fiduciaries Law"), including:
- corporate services providers ("CSPs");
- trust service providers ("TSPs");
- foundation service providers ("FSPs); and
- company directors.
Some rules only apply to full fiduciary licence holders, and not to personal fiduciary licence holders so, for example, individuals acting as directors under a personal fiduciary licence will not be required to comply with the new rules on corporate governance. Some sections do not apply to pension service providers, which also need to comply with the new Pension Scheme and Gratuity Scheme Rules and Guidance, 2020, which will also come into operation on 31 December 2020. In addition, the GFSC has discretion to exclude or modify the application of any provision of the Fiduciary Rules by notice to a licensed fiduciary.
The Fiduciary Rules will replace the existing GFSC Codes of Practice for CSPs, TSPs and FSPs and company directors, the Regulation of Fiduciaries (Accounts) Rules 2001, the Financial Resources Requirements Rules 2018 and Rules 1 to 9 of the Pension Licensees (Conduct of Business) & Domestic and International Pension Scheme and Gratuity Scheme Rules (No. 2) 2017. (Note that the Fiduciary Rules do not replace the GFSC's Code of Corporate Governance or the Handbook on Countering Financial Crime and Terrorist Financing, with which licensees will still need to comply.)
The Fiduciary Rules include guidance notes, which do not form part of the rules themselves, with suggested ways of showing compliance with the rules.
Licensed fiduciaries are permitted to adopt alternative measures to those set out in the guidance so long as it is possible to demonstrate that such measures achieve compliance.
Matters covered by the Fiduciary Rules
The Fiduciary Rules are divided into sections covering the following matters:
- corporate governance, competence and effective management;
- conduct of business;
- prudential (insurance arrangements and financial resources);
- cooperation with the GFSC; and
- transitional arrangements, revocations, citations and amendments.
Changes to the existing regulatory framework
Many of the rules around corporate governance, conflicts of interest, conduct of business, accounts and notifications to the GFSC are in line with, or enhance and strengthen, existing requirements under the Codes of Practice and other applicable rules and regulations. Others reflect the current practice of licensees under the Code of Corporate Governance and the minimum licensing criteria of integrity, skill and prudence. However, there are some new rules that may require updates to existing documentation, policies and procedures.
New client money rules have been introduced to formalise existing good practice, to move towards compliance with international standards and to provide clients with a greater degree of protection in the event of a firm failure. Several elements of the Licensees (Conduct of Business) Rules 2016 on client money have been incorporated so will be familiar to dual-licensees.
Other new rules for licensed fiduciaries cover matters such as record keeping, outsourcing, terms of business, communications to clients, employee screening and training and complaints.
There are also new conduct of business rules that apply to specific activities. Licensees acting as TSPs, CSPs and FSPs, and personal fiduciary licensees acting as directors, will need to comply with additional rules, depending on which activity they are carrying out.
The new client money rules introduce the requirement that "Fiduciary Client Money" is held separately from the licensed fiduciary's own money and another client's money. This requirement does not apply to multi-member pension schemes (including occupational pension schemes) or pooled accounts. "Fiduciary Client Money" means money which is held or received on behalf of a client, or controlled by a licensed fiduciary, in accordance with the responsibilities the licensed fiduciary has accepted in the course of carrying on a regulated activity under the Fiduciaries Law.
Additional rules apply to pooled accounts, which are only permitted to hold client money in limited circumstances (e.g. cash management or treasury services).
Clients need to be informed of the terms on which client money will be held and controls over client money will need to be reviewed annually.
New sector-specific outsourcing rules supplement provisions concerning outsourcing in the Code of Corporate Governance. The new outsourcing rules, which only apply to licensed fiduciaries holding a full fiduciary licence, are intended to ensure consistency with outsourcing rules in other sectors and to reinforce existing standards of good practice and control observed by licensees.
The outsourcing rules permit a licensed fiduciary to outsource functions but confirm that the Board of the licensee retains responsibility and accountability for the outsourced functions. The Board must carry out a risk assessment in respect of any proposed outsourcing and the licensed fiduciary must be satisfied that the outsourced service provider has the necessary ability and capacity to undertake the relevant service effectively.
A licensed fiduciary will need to have a written outsourcing agreement in place for each outsourced activity.
Terms of business
Every licensed fiduciary must have written terms of business, which need to be provided to each client or potential client with whom it proposes to enter into a contract or agreement in respect of the provision of regulated activities.
The agreement must include certain prescribed information, including a clear description of the services to be provided, the fees to be charged, details of the licensee's complaints procedures and any provision for termination of the agreement. The licensee needs to retain a record of each client's agreement to its terms.
The Fiduciary Rules require licensed fiduciaries to ensure that "adequate records" relating to regulated activities are kept and preserved. The new rules include lists of the documents and other information that such records should include as a minimum, which vary depending on whether the fiduciary acts as a CSP, TSP or FSP.
All licensed fiduciaries must ensure that they have appropriate record keeping arrangements in compliance with the Fiduciary Rules and any other applicable legislation. They must also maintain adequate policies and procedures for the maintenance, security, privacy and preservation of all documents and records belonging to the licensed fiduciary and its clients. Those policies and procedures must comply with the Data Protection (Bailiwick of Guernsey) Law, 2017.
A licensed fiduciary must keep and preserve records for a minimum of 6 years, or longer if required under an applicable law (e.g. tax, data protection or AML/CFT legislation).
Additional rules for trustees
Additional rules will apply to a licensed fiduciary acting as a trustee, some of which mirror requirements likely to be found in the terms of the trust and the applicable trust law. For example, there is an obligation to ensure the trust property is held by or vested in the trustee, or is otherwise under its control, and another obligation to ensure that the interests of beneficiaries are paramount.
Licensees holding a full fiduciary licence must also ensure that any personnel who act as trustees understand their duties under the laws applicable to the trust.
Of particular note, licensed trustees must (subject to the terms of the trust and provisions of the applicable trust law):
- upon establishing a trust, take all reasonable measures to ensure that settlors receive any necessary professional advice and that the trust is in accordance with their intentions;
- identify beneficiaries and their respective interests correctly;
- be aware of beneficiaries' personal circumstances; and
- be impartial.
There are also additional requirements in respect of investment management. A licensed fiduciary acting as a trustee must, subject to the terms of the trust:
- manage the investment and custody of trust assets "professionally and responsibly";
- exercise "professional oversight" of any company owned by the trust;
- consider appointing agents and managers including an investment manager, an investment adviser and a property manager; and
- have regard to the different interests of beneficiaries and classes of beneficiaries.
There are also obligations to:
- consider the tax status of the trust;
- where appropriate, file tax returns and provide information to the beneficiaries to enable them to file their own tax returns; and
- consider and, where appropriate, effect the insurance of trust assets.
These additional rules also apply to pension service providers in respect of pension schemes set up as trusts (in addition to the new Pension Scheme and Gratuity Scheme Rules, 2020).
Additional rules for corporate service providers and directors
A licensed fiduciary acting as a CSP, and a personal fiduciary licensee carrying out the regulated activity of acting as a director, must also:
- subject to its legal obligations to other persons or bodies, consider the interests of client companies first;
- where applicable, ensure that any of its personnel who act as officers of client companies understand their duties;
- where applicable, ensure that assets of the client company are in the name of that company or an appropriate nominee;
- where appropriate, file accurate returns with the relevant authorities;
- where appropriate consider the tax status of the client company; and
- consider and, where appropriate, effect the insurance of assets of the client company.
When acting as a director, a licensed fiduciary must take "all reasonable measures" to obtain information sufficient to make a decision regarding the company.
Additional rules for foundation service providers
A full fiduciary licence holder acting as a FSP must ensure that any of its personnel who act as foundation officials understand their duties under the laws of the jurisdiction in which the relevant foundations are registered or established.
There are additional rules where the licensed fiduciary takes on the role of councillor, many of which will reflect the requirements of the relevant foundation legislation or the provisions of the foundation's constitutional documents, for example a requirement to act in good faith and to manage the investment and custody of foundation assets professionally and responsibly.
Most well-managed fiduciary businesses will already be compliant with the majority of the Fiduciary Rules, particularly those dealing with corporate governance and conduct of business, either because the new rules echo the requirements of the existing Codes of Practice and other relevant rules and guidance, or because they reflect good practice.
However, drilling down to the detail of the Fiduciary Rules, they are more prescriptive than the requirements of the existing rules regime in respect of information to be included in a licensee's client documents and they impose additional requirements in respect of certain aspects of the licensee's business.
Documents and areas of business that should be reviewed and may need to be updated before the Fiduciary Rules become operative on 31 December 2020 include:
- terms of business, client agreements and letters of engagement;
- outsourcing agreements and records;
- agreements with investment managers, investment advisers and property managers;
- employee screening and training;
- minutes and resolutions (including templates);
- conflicts of interest policies and procedures;
- client money controls;
- record keeping;
- data security;
- document retention policies;
- advertising and communications with clients;
- complaints procedures; and
- procedures for reporting to the GFSC.
The Fiduciary Rules also require licensees to have policies and procedures in place to ensure compliance with the rules, so these will need to work alongside the licensees' documentation and dovetail with them.
How Bedell Cristin can help
Our team of experts has significant experience in all aspects of fiduciary regulation and has a deep understanding of the commercial needs of fiduciary businesses. We are able to help with reviewing any or all of the documents and areas of business mentioned above and preparing any new or updated documentation, policies and procedures needed to comply with the Fiduciary Rules. We can also help with reviews of trust deeds, constitutional documents and contracts and any necessary staff training to ensure the relevant personnel understand the fiduciary's legal duties and obligations.
We suggest identifying the documents and areas for review within the next few months so that any necessary changes can be made ahead of 31 December 2020 when the Fiduciary Rules will come into operation.
For further information or to discuss how we can assist, please get in touch.
Author - Kerrie Le Tissier, Partner