7 May 2009

National Regulation of Trustee Companies

Senator Nick Sherry, Minister for Superannuation and Corporate Law, today released the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 that will see the national regulation of trustee companies for the first time in Australia's history.

The new legislation includes a significant boost for consumer protections, a major reduction in red-tape for business and the creation of a national market for trustee company services for the first time.

The Bill also delivers on the Rudd Government's commitment to the States and Territories and to the finance sector, made through the Council of Australian Governments (COAG), to assume responsibility for the regulation of trustee companies through the introduction of legislation providing for a single, standard, national regulatory regime.

Trustee companies are currently regulated at the State and Territory level. There are currently ten private licensed trustee companies operating in Australia. Members of the Trustee Corporations Association, the sectors' peak body, have approximately $510 billion of assets under management. Of this, around $24 billion is in "traditional trustee services", such as when acting as a trustee for charitable trusts, in deceased estate administration and for minors.

"This Bill completely reshapes the regulation of this multi-billion dollar financial services industry and reflects the Rudd Government's plan to modernise Australian financial services regulation into the 21st century."

"Today we announce the end of multiple, often contradictory, state-based regulations totalling about 300 pages and their replacement with one clear, standard, national regime – but we've done this at the same time as boosting consumer protection and cutting business red-tape burdens," said Minister Sherry.

The new regime, which is focused on entity‑level regulation of trustee companies' traditional services, will provide authority under Commonwealth law for trustee companies to perform these traditional functions, deem such services to be "financial services" and require them to hold an Australian Financial Services Licence when selling such services.

During 2008, the Government raised the options of establishing either the prudential regulation of trustee companies or a consumer-focused regulatory regime to be overseen by the Australian Securities and Investments Commission (ASIC). After extensive consultation, ASIC regulation has been chosen as the most effective way forward. However, the Bill also contains a requirement for trustee corporations to maintain a minimum capital level, thereby further enhancing consumer protection.

"Trustee companies perform a very important role in managing assets on behalf of large numbers of Australians. They are expected to exercise a high degree of care, for example when looking after the interests of beneficiaries of charitable trusts and persons unable to manage their own affairs. These are amongst the most vulnerable Australians."

"ASIC will be the sole national regulator for the trustee companies' sector, a move that will result in greater protection and certainty for both consumers and providers," said Minister Sherry.

As part of the new laws, trustee companies will be subject to new obligations covering financial product disclosure, licensing, conduct and advice, resulting in greater levels of consumer protection. Trustee companies will also need internal and external dispute resolution mechanisms, providing a simpler, cheaper way for consumers to resolve complaints, as an alternative to the high costs and delays involved in court action.

The replacement of different and inconsistent State-based regimes will also make it easier for trustee companies to operate across Australia, thereby removing artificial barriers to entry, promoting greater competition and allowing the development of a truly national market for trustee services.

The Bill also establishes an innovative approach to the issue of trustee company fees, which in most jurisdictions are currently subject to regulation. For the first time, all fees must be fully disclosed to all of the Australian public via the internet. Overall, fee caps are to be removed and subject to market conditions, noting that new clients can only be charged the fees specified in the company's latest fee schedule, and existing contractual arrangements remain in place.

Finally, the level of fees charged to charitable trusts and foundations that are new clients of trustee companies will remain, for a period of two years, subject to regulation based on the fee regime set out in the Victorian Trustee Companies Act (1984). Charitable trusts that are existing clients will have their fee levels grandfathered to ensure no existing client fees rise as a result of the new regime.

State‑owned entities that meet the legislation's criteria will be considered for inclusion on the list of trustee companies to be created under the new national scheme.

Initial consultation on the new measures occurred in the context of the release of the Green Paper on Financial Services and Credit Reform in 2008 and extensive discussions over the last six months with State and Territory Governments and the trustee company and philanthropic sector representatives. 

The Exposure Draft of the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 is available at www.treasury.gov.au. The public exposure period ends on 29 May, 2009 and, subject to the agreement of the States and Territories, the Bill will be introduced into Parliament in June.