Action on trust law loophole urged
Disciplinary findings in UK against accountant Deborah Annells prompt lawmakers to seek consumer protection with regulatory oversight
Hong Kong lawmakers have urged the government to take quick action to plug what they describe as loopholes in local trust law governing how administrators handle client money held in trusts.
They voiced their concerns after local accountant Deborah Annells, the founder and managing director of Hong Kong-based AzureTax, was found by a disciplinary tribunal of the British Chartered Institute of Taxation to have committed six instances of dishonesty involving Hong Kong customers.
Hong Kong has no regulator overseeing trust administration and no qualification or licensing requirements covering who may offer tax advisory and trustee services. The two services are commonly offered together.
"I simply do not see why there is no licensing requirement for trust administrators, as they handle multimillion-dollars of client money," said Christopher Cheung Wah-fung, legislator for the financial services sector.
"Small brokers who may deal with only some small investors for trades worth only a few thousand dollars need to pass a qualification examination and conduct requirements to get a licence to operate from the Securities and Futures Commission. The same should apply to trustees who handle client money."
Democrats lawmaker Sin Chung-kai said the city should have a regulator to enforce the law and ensure that trust administrators took care of investors. "If they are not behaving well there should be a regulator to penalise or ban them. The government should plug the loophole," he said.
A Financial Services and Treasury Bureau spokeswoman said the government would review the trust law from time to time to match international standards.
A spokesperson for the industry peak body the Hong Kong Institute of Certified Public Accountants said once a customer complaint was received the institute followed standard procedures. It was now collecting evidence relating to the Annells case but no finding had yet been made.
However, since local law did not require tax advisers or trust administrators to be members of the institute or any other professional organisation, expelling institute members would not prevent them from doing business in the city.
HKICPA president Susanna Chiu said that while she would not comment on individual cases, it might be worth reviewing current oversight of tax advisory and trust services.
"It is all about the confidence of investors. If the law requires one to be a member of the HKICPA for them to offer tax and trust services it may help strengthen the regulation of the ethics of those offering these services to the customers," Chiu said.
A government source said most trustee services in Hong Kong were provided by either banks, insurance companies, or fund houses, all of which had industry regulators. However, there was no regulator for tax advisory or trustee services in Hong Kong or other comparable markets, the source said.
A trustee company operator who did not want to be named said it was easy to set up a trust business in the city. "There is no need to apply for any licence from any regulator and no one will check your books or look into the conduct of your staff. This is why Hong Kong is seen to be an ideal place to set up a trust business," he said.
But the loophole in regulatory oversight has led critics to argue that there were not sufficient curbs on malpractice in the trustee industry, which made it difficult for Hong Kong to compete with better-regulated cities to become a trustee centre.
Regulatory regimes in the city have also been called into question by the closure of the Hong Kong Mercantile Exchange (HKMEx) in May and the subsequent arrest of seven people related to charges of financial irregularities at the exchange; as well as the sale by some banks and insurance companies of investment-linked products deemed unsuitable to customers who said they were misled into buying them.
"The government has adopted a very light regulatory approach to trustees, the HKMEx, and the banks who sell investment products. This is not fair to brokers who face much tougher regulation by their regulator, the SFC," Cheung said.
"To enhance investor protection, the government needs to bring in tougher regulations covering all trustee operators and it should also tighten regulations on banks selling investment products.
"It is important for Hong Kong to develop new businesses. But if we do it at the expense of investor protection, it would lead to scandals and eventually that will damage the reputation of the Hong Kong market."