Insights

On 5th December 2024, the MFSA launched a consultation period on a proposed new Rulebook for Trustees and other Fiduciaries (the “New Draft Rulebook”), ending on the 31st January 2025.

Whilst the New Draft Rulebook builds on the current Code of Conduct (published on February 9th 2005) and also builds further on a previous draft Rulebook that had been issued for consultation on the 30th December 2016 (including by taking into account feedback received following the consultation period back then), it also contains a number of changes, both in style and of substance.

Seeing that both the Code of Conduct and the first draft Rulebook have long been published, it is not a surprise that the rules have been updated to take into account various regulatory developments that have taken place since then, including amendments to the Trusts and Trustees Act in 2017 mainly those to allow authorised trustees to act as company services providers, as well as the clarification that it is the place of operation of a person (whether legal or natural) that is the relevant connecting factor for regulatory purposes and not residence, amendments to the Civil Code (Second Schedule) in 2018 and 2020, the introduction of the MFSA’s Corporate Governance Code in 2022, the MFSA’s Authorisation Process – Service Charter issued in 2021 and updated in 2024, and the more recent Rulebook for Trustees of Family Trusts published on the 27th November 2024.

The rules have now been formulated into a rulebook style, following the model adopted for other Authorised Persons such as the Rulebook for CSPs, besides the most recent Rulebook for Trustees of Family Trusts. Indeed, whilst certain principles such as those on Competent and Effective Management, Adequate Personnel, Staff Knowledge, Competence and Continuous Professional Education, Adequate Systems and Controls (which had already been included in the first draft Rulebook) have been reproduced from the Code of Conduct, they are now placed within a dedicated chapter on ongoing obligations for Trustees and other fiduciaries together with other more recent regulatory obligations. The Rulebook is therefore quite far-reaching and the topics are presented in a well-structured, more streamlined manner.

The New Draft Rulebook is in fact split into five chapters specifically dedicated to:

1. Chapter 1 – General Scope and High Level Principles;
2. Chapter 2 – Authorisation;
3. Chapter 3 – Ongoing Obligations;
4. Chapter 4 – Supplementary Rules;
5. Chapter 5 – Enforcement Sanctions

The most prominent proposed changes introduced by the New Draft Rulebook include;

• the extended scope and applicability of the Rulebook so that unlike the current Code of Conduct, which was limited in scope and applicability to trustees whether authorised or not required to be authorised, mandataries, and administrators, the New Draft Rulebook also applies to individuals acting as company services providers who have notified the Malta Financial Services Authority (MFSA) under the Company Service Providers (Exemption) Regulations and authorised persons providing services as Qualified Persons. The New Draft Rulebook does not apply to trustees registered in terms of Art43B of the Trusts and Trustees Act seeing that the Rulebook for Trustees of Family Trusts has now been published;
• further guidance on the application process with the MFSA, over and above that provided in the first Draft Rulebook, by providing added insight into the MFSA’s expectations and time frames with reference to the MFSA’s Authorisation Process – Service Charter. The New Draft Rulebook now adds that that the MFSA also considers the reputation and suitability of the applicant and all other parties connected with the applicant and the adequacy of the applicant’s resources including human, financial and systems in place when considering an application for authorisation. It is worth noting that the New Draft Rulebook clarifies that the burden of proving fitness and properness now lies with the applicant;
• a new clarification that persons having an establishment in Malta providing trustee service to persons outside Malta shall be subject to authorisation as they will be providing services from Malta;
• a new derogation from the requirement of having an independent Compliance Officer where the applicant/authorised person is a natural person providing the service of administrator of private interest foundations or the service of mandatary only;
• the introduction of an obligation to obtain a number of CPE hours on an annual basis following approval of authorisation;
• a new dedicated chapter to ongoing obligations which largely reproduces the provisions of the Code of Conduct (for matters such as Competent and Effective management, Adequate Personnel, Staff Knowledge Competence and Continuous Professional Development, Adequate Systems and Controls) which were already included in the first draft Rulebook with certain additions such as the requirement of having in place a personal transaction policy as well as certain additions to the notifications and approvals required to be made to the MFSA. The Chapter related to ongoing obligations now also refers to provisions found in the Corporate Governance Code;
• a new reference to a retention period (for documents) of 5 years for inspection by the MFSA (without prejudice to any other retention period in terms of applicable law), introducing different cut off dates depending on the type of document (distinguishing between accounts, outsourcing arrangements, training records, legal advice etc);
• added matters to be covered by PII as well as added circumstances relating to PII cover which must be notified to the MFSA;
• a new dedicated title to CSPS under the Chapter of Supplementary Rules which now also deals with the requirement of notification to the MFSA and the financial resources requirement, besides also setting out procedures for customer due diligence for the various services provided;
• a new dedicated title to authorised persons acting as Qualified Persons under the Chapter of Supplementary Rules – on this point whilst the New Draft Rulebook states that for the purposes of ensuring compliance with fiscal, prevention of money laundering and other legal obligations in connection with the relevant property the trustee shall take into consideration ‘any applicable requirements’ to the relevant property (both prior to an on an ongoing basis) – on this point it must be said that it is not entirely clear which applicable requirements are referred to particularly in the context of ‘other legal obligations’. The rules also set out requirements on the considerations to be made prior to accepting to act as qualified person besides setting out guidance on the required notifications to be made;
  – a new dedicated title to Private Trustees under the Chapter of Supplementary Rules which includes guidance on the details and information to be kept including that the trustee has a clear understanding of the purpose of the trust, the right of the MFSA to request information and documentation as well as guidance on the information and documentation required to be kept. The Rulebook also make the following rules (within the Rulebook itself) applicable to Private Trustees – high level principles, the requirement relating to retention of documents, rules relating to investments and rules on delegation.

Once issued the New Draft Rulebook will replace the Code of Conduct.

The consultation period is open until the 31st January 2025 and interested parties are encouraged to send in their feedback.