On the 8th of August 2023, the Malta Financial Services Authority (“MFSA”) published a consultation document outlining proposed amendments to the Rules for Trustees of Family Trusts that are colloquially known as the ‘PTC Rules’. The changes essentially aim to enhance the regulatory framework, address industry feedback and also clarify certain aspects of the Rules.
Scope of Consultation
The scope of the consultation covers various key areas including:
- the structure itself of the Rules;
- high-level principles for Registered Trustees that aim to set the tone for PTCs;
- enhanced registration considerations;
- expanded fitness and properness assessments,
- additional documentation for registration,
- the much-awaited removal of the requirement to have a Money Laundering Reporting Officer (“MLRO”) requirement;
- codification of Directors’ duties;
- detailed rules for ongoing obligations; and
- the introduction of alternative insurance cover rules.
Proposed Amendments to the Rules
What follows is a brief overview of the main changes being proposed.
1.High-Level Principles
The intended principles aim to direct Registered Trustees (referring to trustees registered with the MFSA as trustees of family trusts under article 43B of the Trusts and Trustees Act, Chapter 331 of the Laws of Malta; the “Act”) to operate ethically, with care and diligence, while taking into account clients’ best interests and the integrity of Malta’s financial system.
2.Registration Considerations
For transparency, the MFSA announced its intention to unify and publicly share the relevant evaluations and procedures carried out when deciding whether to register a trustee under Article 43B of the Act. These assessments primarily centre around establishing a family connection. Consequently, the MFSA proposes the inclusion of the subsequent points into R3-2.1 of the Proposed Rulebook, delineating that the MFSA will contemplate two pivotal factors during the registration process:
- the existence of an authentic relationship between the settlor(s) of the family trust and the beneficial owner(s) of the trustee for the family trust (i.e. the applicant, even though the rationale for linking familial ties to the trustee’s ownership is not entirely clear); and the presence of family relationship links in any trust managed by the family trustee.
- the presence of familial relationship links within any trust managed by the family trustee.
Furthermore, the Proposed Rulebook suggests that, as part of the registration assessment, the MFSA will request all applicants to explain for choosing Malta as the jurisdiction for establishing the trustee of the family trust (R3-2.2 of the Proposed Rulebook). Additionally, it will be explicitly stated that the responsibility for demonstrating compliance with the registration criteria rests with the applicant (R3-2.3 of the Proposed Rulebook).
3.Fitness and Properness Assessment
The fitness and properness assessment, originally aimed at proposed Directors, has been broadened to cover other relevant parties when necessary, ensuring a thorough evaluation of all persons occupying important roles within the registered trustee. This is formalised through Proposed Rule R3-4.4(ii), extending assessment to influential decision-makers and implementers.
4.Additional Documentation to be Submitted to the MFSA in relation to the Registration Process
In R3-3.2 of the Proposed Rulebook, the MFSA also seeks to clarify the conditions required to be satisfied by applicants looking at registration and to also specify the required documents for successful registration. The Proposed Rulebook will require the following documentation to be submitted: an application form, a shareholding structure detailing all layers up to the ultimate beneficial owner/s, and a summary of the settlor/s background.
It is also being proposed that if during the term of their registration with the MFSA Registered Trustees administer additional trusts in line with article 43B of the Act, they must also submit signed copies of the relevant trust instruments in order for the MFSA to ensure compliance with the requirements for trustees of family trusts.
5.Removal of Requirement of Appointment of MLRO
The proposal to remove the MLRO requirement follows a determination by the Financial Intelligence Analysis Unit (“FIAU”) that PTCs and their operations do not fall within the definition of subject person for AML-CFT purposes (namely the definitions of ‘trust and company service provider’ and ‘relevant activity’ as set out in Regulation 2(1) of the Prevention of Money Laundering and Funding of Terrorism Regulation (published in terms of the Prevention of Money Laundering Act; chapter 373 of the Laws of Malta). This will no doubt be a welcome development for the industry which has up to now been, in many cases, incurring the additional cost of engaging an MLRO to take on this role and will bring the position for PTCs (being the corporate version of private trustees) in line with that for individual private trustees (in terms of article 43A of the Act) who are also not regarded as subject persons for AML-CFT purposes.
6.Duties of Directors
The duties of Directors of PTCs are being reinforced by proposed changes to Chapter 4 of the Proposed Rulebook. These include:
- ensuring the Registered Trustee is effectively managed by a minimum of two individuals to meet the dual control principle;
- ongoing responsibility for adhering to the Registered Trustee’s reporting obligations with respect to regulatory deadlines; and
- ensuring accurate and timely reporting of beneficial ownership information for all administered trusts in accordance with the Trusts and Trustees Act (Register of Beneficial Owners) Regulations, 2018.
7.Reporting Obligations
The MFSA is proposing to set out the various reporting obligations applicable to registered trustees, with the proposed Rulebook including a comprehensive list of documents required to be provided by PTCs to the MFSA as part of their ongoing obligations, and replacing the current Certificate of Compliance with an Annual Compliance Return to avoid duplication of regulatory submissions. The proposed Rulebook also includes an annexe which sets out a table outlining all regulatory deadlines for each respective regulatory submission as a useful reference point for registered trustees.
8.Ongoing Obligations
Concerning the ongoing obligation of record-keeping, which is crystallised in the proposed Rulebook, the MFSA also proposes to set out its expectations on the matter, including with respect to the registered trustee’s reporting obligations (both in terms of the reporting of beneficial ownership information – or TUBOR – and in relation to the general records of the registered trustee). The MFSA is also proposing that reference be made to relevant MFSA guidance, including the Guidance on Technology Arrangements, ICT and Security Risk Management and Outsourcing Arrangements published by the MFSA on the 11th of December, 2020.
The proposal also introduces an obligation to notify the MFSA or seek its approval, in specific circumstances. Notification would be necessary, according to the proposal, if the auditor of a Registered Trustee plans to qualify the audit report, if the Registered Trustee becomes aware of ongoing or planned legal proceedings against it or if it intends to make claims under professional indemnity or other insurance policies it holds.
9.Alternative Insurance Cover Requirement
A proposed alternative insurance cover rule provides an option for Registered Trustees unable to obtain professional indemnity insurance (PII), following difficulties that have been experienced by various trustees in this sector to obtain suitable cover coupled with a reduction in the market of service providers offering PII cover or of service providers recalibrating their risk appetite when it comes to the provision of cover. The proposed alternative is intended by the MFSA to serve as a measure of last resort and would require registered trustees to perform a thorough assessment of the interests as well as the risks it would be faced in the absence of PII cover, to document the assessment and revisit it periodically and, following the assessment, to consider any measures to address possible claims and to maintain documented mitigating measures (such as the setting aside of reserves).
Conclusion
The proposed changes represent a comprehensive effort by the MFSA to strengthen the regulatory framework for Trustees of Family Trusts, enhancing transparency, ethical behaviour, and compliance in the industry.
The MFSA is accepting feedback on the matters raised up to the 11th of September 2023. The Consultation Document itself is accompanied by the draft Rulebook for trustees of family trusts that the MFSA is proposing to replace the current rules.
Ganado, through Dr Anthony Cremona, Private Client and AML-CFT partner, will be participating in the consultation exercise through various professional bodies that Dr Cremona is involved in.