Hong Kong's antiquated trust laws are to be modernised under a planned reform to help develop the city into an asset-management hub.
A three-month consultation was launched yesterday on the Trustee Ordinance, which has been largely untouched since its enactment in 1934. The business sector has been urging reform for years, warning that the city was losing trust business.
Trust services have been growing in importance as part of an array of wealth-management services on offer. In recent years, many offshore jurisdictions have made business-friendly amendments to their laws, such as allowing trustees to subcontract some responsibilities.
A deputy secretary for financial services and the treasury, John Leung Chi-yan, said the planned overhaul was modelled on reforms in Britain, Singapore and New Zealand.
'Modernising our trust law will strengthen the competitiveness and attractiveness of our trust-services industry,' Mr Leung said. 'It will encourage more local and overseas settlors to choose Hong Kong law as the governing law of their trusts and to administer their trusts here.'
The proposals include the introduction of a statutory duty of care for trustees so that settlors can have a better idea of the standard of care to be expected from trustees. But Mr Leung said the government would keep the so-called Schedule 2 of the law that aimed to disallow trustees from making high-risk investments.
'The government favours retaining Schedule 2 substantially intact in view of the current financial crisis and the concerns that some financial products have outstripped the abilities of issuers and users to manage them,' he said.
For example, trustees can only invest in companies with a minimum market capitalisation of HK$10 billion.
Grace Kwok Wing-see, principal assistant secretary for financial services, said there was a need to provide 'reasonable safe-harbour limits for investment by trustees'.
Ms Kwok said the idea was to provide better protection for less experienced or smaller trustees, while for experienced or institutional trustees, settlors could provide them with wider powers of investment.
Democratic Party legislator James To Kun-sun welcomed the reform. 'The proposals look reasonable, but we have to wait until the government introduces the legislative amendments to the Legislative Council to see the details,' he said.
The government is expected to release a report by the end of the year, and it hopes to introduce amendments to Legco next year.