Trustee Supervisory Model
Background:
Currently the Securities Act 1978 requires the issuers of debt securities and collective investment schemes offered to the public to engage the services of a trustee corporation for the purposes of frontline supervision of that issuer. The ‘Supervision of Issuers' Discussion Document asked: whether trustees should continue as frontline supervisors of issuers of debt securities and collective investment schemes; whether trustees had the necessary powers to carry out this role; and whether there was sufficient transparency and accountability in relation to the supervisory function which is performed by trustees. Submissions on the Discussion Document presented strong support for retaining trustees as frontline supervisors.
The model retains trustees as ‘frontline' supervisors of debt securities and collective investment schemes, but has an enhanced role for the Securities Commission, which will approve trustees and monitor them on an ongoing basis. The Securities Commission will have a graduated set of powers to deal with a trustee that appears to be in breach of its obligations.
What is the Trustee Supervisory Model?
The Trustee Supervisory Model retains trustees as ‘frontline' supervisors of debt securities and collective investment schemes, but with a new regulatory function for the Securities Commission, who will approve trustees and monitor them on an ongoing basis. Collective investment schemes (CIS) include participatory securities, unit trusts and superannuation schemes. Debt securities include non-bank deposit takers.
What are the objectives of the Trustee Supervisory Model?
The model aims to
- provide a well founded basis for consumers to rely on financial promises being kept;
- encourage sound governance of institutions;
- deter, detect and minimise the risk of unfair or fraudulent conduct; and
- facilitate contestability, competitiveness and innovation.
What will happen to the current automatic right of some statutory trustee corporations to act as trustees for CIS and debt issuers?
There are currently four statutorily approved trustees (Public Trust; Trustees Executors; Guardian Trust; and Perpetual Trust) with this automatic right. This automatic right will be removed. Anyone wishing to be approved to act as a trustee will have to satisfy the Securities Commission that they meet the approval criteria. It is expected that the current statutory trustee corporations should be able to meet any of the proposed criteria.
What will be the Securities Commission's role in the Trustee Supervisory Model?
The Commission's key role will be to approve trustee licences; to monitor trustees' compliance with the terms and conditions of their licence and to address any non-compliance. The Securities Commission will also:
- have discretion in the application of criteria, and may impose conditions and obligations on a particular trustee. This is because each class or classes of securities differ and require varied forms of capability and expertise. Approval will be subject to an appeals process on the basis of law and merit.
- monitor whether the trustee continues to meet the terms and conditions of its approval.
- be able to receive and act upon complaints which arise from the approval or monitoring of trustees under the trustee supervisory model, and to act on any information it receives, relating to a complaint.
- be provided with a graduated set of powers to deal with a trustee that appears to be in breach, ranging from requesting further information from a trustee to suspension to revoking some or all the trustee's licences.
What are the approval criteria to become licensed as a trustee?
Approval criteria will be flexible in order that they may be tailored to suit the trustees of various single issues of securities, or classes of securities issues.
The Securities Commission will be able to approve trustees to act for a specific issue, for a general class of securities (i.e. debt, or CIS), or on an ‘all-securities' basis, as appropriate.
Some approval criteria:
- meeting registration obligations with the Registrar of Financial Service Providers
- independence from issuers and related parties
- appropriate skills, qualifications and experience
- satisfaction of "fit and proper" character requirements
- adequate infrastructure and resources
- appropriate governance standards and procedures
- capital adequacy
- monitoring systems and procedures
- professional indemnity insurance provision
- corporate form to clarify legal and accounting separation of assets
- New Zealand residency
What happens if the Securities Commission declines an application for approval to be a licensed trustee?
If the Securities Commission declines an application, it will be obliged to give the applicant its reasons for doing so. The applicants will be able to bring their case back to the Securities Commission for reconsideration. The Securities Commission will provide an opportunity for the applicant to be heard. Applicants who are still dissatisfied, as well as being able to seek judicial review of the decision, and will have a right of appeal to the High Court, on both law and merits.
What are the penalties for acting as a trustee without a licence?
A person who acts as a trustee for any class or classes of securities issued to the public without a licence will commit an offence and be subject to penalties for that offence. The offence provisions will adopt a similar framework to those already contained in the Securities Act 1978.
What reporting requirements are there by trustees to the Securities Commission?
There will be periodic (annual) reporting and event-based reporting requirements. These are designed so the trustee must demonstrate ongoing compliance with its licence.
What happens if a trustee is suspended or removed and an issuer is unable to appoint a new trustee?
In those cases, the Securities Commission would appoint an ‘interim trustee' until the issuer finds a new trustee. This statutory trustee could either continue to supervise the trust, or wind it up in accordance with the trust deed. This statutory trustee will have assured funding, and indemnification from liability for any actions or omissions of the removed trustee and will not be able to profit from the appointment.
What information sharing provisions are there in the Trustee Supervisory Model?
Trustees currently have obligations to the Registrar of Companies under the Corporations (Investigation and Management) Act 1989, including giving notice of their concerns under section 11 in certain dire circumstances. Currently, trustees often consult with the Securities Commission prior to giving the Registrar such notice, and it is proposed that they retain this ability. Submitters supported this, but did not wish such consultation to be an obligation. It is however proposed that when a section 11 notice is given, the Registrar of Companies give a copy of this notice to the Securities Commission for the purposes of the Commission's role as general overseer of trustees.
Who has the power to make regulations prescribing fees and charges?
The Governor-General will have the power to make regulations prescribing fees and charges in connection with the application and approval procedure. There will be consultation on any fees. This power will be equivalent to the current s70A(2) of the Securities Act.
What legislation is impacted by the Trustee Supervisory Model?
The changes will likely require amendments to the Securities Act 1978; the Securities Regulations 1983; the Unit Trusts Act 1960; The Corporations (Investigation and Management) Act 1989; the Trustee Act 1956; The Trustee Companies Act 1967; and the Trustee Companies Management Act 1975.
What confidentiality assurance is there for all data given to the Securities Commission?
All data given to the Securities Commission under the supervisory model will be considered to be given in confidence and kept private, except data that is aggregated with that of other trustees in order to provide an overview of the sector.
All data given in confidence will have protection from the Official Information Act 1982. However, the trustee will be able to agree with the Securities Commission to release a particular piece of information.
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