Trust investment rules under review

PUBLISHED : Tuesday, 23 February, 2010, 12:00am
UPDATED : Tuesday, 23 February, 2010, 12:00am

The government may adjust the criteria that regulate investment by trusts, even before the Legislative Council begins work on proposed changes to the Trustee Ordinance later this year.

Under the ordinance, the financial secretary may make changes to the list of approved investments - affecting which kinds of listed companies are suitable for investments - to better reflect market developments.

For instance, the minimum market capitalisation of approved listed companies, now set at HK$10 billion, may be lowered to HK$1 billion, a government spokesman said. A company could also be required to pay dividends for five out of six or seven years, instead of the five consecutive years now, he said.

Locally listed shares of mainland companies, or H-shares, may also be approved as they are commonly part of an investment portfolio.

However, the spokesman said, the laws may need to be reviewed as they now allow trusts to invest in products such as Lehman Brothers minibonds, the credit-linked, high-risk derivatives that became worthless in the financial meltdown.

The proposed changes followed a public consultation last year on updating laws that govern trusts in Hong Kong. Critics have long argued that the city cannot compete favourably with jurisdictions such as Jersey, the Cayman Islands and Singapore for trust business until it modernises its Trustee Ordinance, which has remained largely untouched since 1934 and is based on the English Trustee Act of 1925.

Many wealthy people keep their shareholdings in trusts to reduce taxes and plan for succession.

Hong Kong's trust business was initially driven by issues related to estate duty, which is levied on a person's assets at the time of death. The duty was scrapped in 2006.

The government spokesman said a law in Hong Kong that limits the number of years a person has power over his assets or property - which in Britain is 125 - may also be scrapped.

Clifford Ng Sau-man, a partner with law firm K&L Gates, said the ordinance was woefully outdated and that the proposed changes were a 'good, big step', but more needed to be done.

'Instead of trying to copy or find common ground in the trustee legislation of other jurisdictions, Hong Kong should look at what needs to be done here and determine the rules that would make Hong Kong a competitive and strong international financial centre,' Ng said.

The government will report the findings of the consultation to Legco next Monday.