Exposing the Hocus Pocus of Trusts

Kent D. Schenkel

New England Law - Boston

A trust beneficiary may receive substantial benefits to property, and perhaps even virtual control over that property, yet the trust shields that property from costs associated with beneficiary’s commission of a tort, or a default on unsecured debt obligations, or the failure to provide for the surviving spouse at death, to give a few examples. While the outright owner of property must hold that property subject to the valid claims of these other parties, no participant in the trust arrangement undertakes these burdens. Instead, in an act of hocus pocus, they seem to simply vanish.

Unfortunately, the magic of trusts turns out to be a chimera, as the costs do not really disappear; they merely resurface elsewhere, falling on those outside the trust relationship. For example, burdens placed on outsiders as a result of property held in trust lead to litigation over rights of tort creditors as against trust beneficiaries and increase the cost of insurance and credit. This article serves as a call for recognition of what it terms these “elective externalities,” as well as a search for a practical approach to reducing them.

Schenkel, Kent D., Exposing the Hocus Pocus of Trusts (February 27, 2011). Available at SSRN: http://ssrn.com/abstract=1771642

Strengthening of institutional arrangements to promote international cooperation in tax matters

Pursuant to ECOSOC resolution 2010/33, the present report examines a range of issues related to the strengthening of institutional arrangements to promote international cooperation in tax matters. Against the backdrop of universal consensus on the key role of international tax cooperation for the mobilization of financial resources for development, the report reviews the existing institutional arrangements, including the Committee of Experts on International Cooperation in Tax Matters, and the work done on tax matters in other international forums. It also summarizes the views provided by Member States and presents options, for consideration by the Council, on the strengthening of institutional arrangements within the United Nations to enhance international tax cooperation.

9th Round of the Mauritius-Pakistan Joint Working Group

The 9th Round of the Mauritius-Pakistan Joint Working Group (JWG), held from 21 to 23 February 2011 in Islamabad, Pakistan, focused on the need for further consolidating the Preferential Trade Agreement (PTA).

The PTA, which came into force on 30 November 2007, allows some hundreds of tariff lines to be traded between Mauritius and Pakistan on preferential terms. The ultimate objective is to pave the way for a Free Trade Agreement (FTA) that will encompass substantially all products and will also cover trade in services.

Discussions at the 9th Round evolved on the need to put in place concrete programs to create synergies between the business communities of the two countries. Interest was shown by the Mauritian side in establishing cooperation with the light engineering industry as well as the handicraft sector of Pakistan. Both sides discussed the draft framework agreement for trade in services and agreed to engage on project-based cooperation in that area such as ICT, health, education, tourism and logistic services.

Mauritius and Pakistan have agreed to further deepen collaboration ties in the field of higher education. Pakistan will facilitate the admission of Mauritian students for undergraduate and postgraduate programs as well as professional degrees. Both countries share many cultural affinities and in the margin of the 9th JWG, Mauritius and Pakistan signed a Cultural Exchange Program which aims at facilitating the exchange of folk art, music, crafts, and cultural troupes between the countries.

The 9th JWG meeting concluded by the adoption of a joint report in which both the sides undertook to continue to deepen and strengthen the bilateral ties mainly by promoting people to people contact at different levels especially through tourism.

Moreover, during its stay, the Mauritian delegation called upon the Pakistani Minister for Commerce, Mr. Makhdoom Amin Fahim. It also had working sessions at Federation of Pakistan Chambers of Commerce & Industry and Federal Board of Revenue.

Since 2005, Mauritius and Pakistan have established a channel of structured dialogue through the JWG with a view to boost the bilateral trade and economic relations. The JWG meets at the level of high officials of the two countries and the meeting is held alternately in Port Louis and in Islamabad to work on the bilateral trade agenda every year.

The JWG held its first meeting in Islamabad in May 2005.

GIIF: Update on the recent meeting with MOF

A meeting of paramount importance was held under the aegis of the Ministry of Finance, last Tuesday, on 22 February 2011 regarding an enhanced collaboration between GIIF and the main Government stakeholders.

In this context, key representatives of the Ministry Of Finance (MOF), Board of Investment (BOI), Mauritius Revenue Authority (MRA), the Financial Services Commission (FSC), and the Ministry of Foreign Affairs were present in order to elaborate a proper framework to channel GIIF’s views to Government regarding key industry related issues.

GIIF’s inception and organisational structure

The Ministry of Finance welcomed the inception of GIIF at a very timely moment for the sector in the wake of important challenges looming ahead for the industry. This meeting would pave the way to future ongoing Private/Public sector collaboration after deciding upon the framework which the said collaboration would take. GIIF would represent the Private Sector in this regard.

Attendees were first informed of GIIF’s compostion, namely the respective identity of its trustees and its enforcer, as well as the nature of its membership base. The names of those present on GIIF’s Advisory Council were also disclosed, with emphasis being laid upon their expertise and international recognition in relevant fields, which revolve mainly around international and corporate taxation. Those present were also informed about GIIF’s weekly operational meetings on Wednesdays together with the participation of the ATMC in those meetings.

GIIF Technical Sub-Committees

The attendees took cognisance of the various Sub-Committees which had been set up under GIIF and which are dedicated to key industry issues which have been identified by our esteemed members:

Ø Financial Products (and a specific sub-committee for GBC2s);

Ø Double Taxation Treaties (DTAs);

Ø International Cooperation & Assessment;

Ø Communication;

Ø Promotion & Marketing;

Ø Limited Partnership & Foundation Bills (pending since the last 10 years);

Ø Competitiveness & Sustainability of our Financial Services Industry;

Ø DTC and India initiative

The Ministry of Finance acknowledged the importance of these technical Sub-Committees and the work that they had already been initiated.

Direct Taxes Codes (DTC)

The attendees were also apprised of the latest developments regarding GIIF’s initiatives on the above-mentioned issue, namely reference was made to the documents which had been sent to the Standing Committee in India. It was explained that GIIF was now expecting to depone in India before the Standing Committee after having successfully completed its DTC Master Document with the precious help of its prominent Advisory Council members. This Master Document will also be used as and when required by various stakeholders, especially in view of the eventual publication of the GAAR guidelines. The completion of this Master Document is further testimony of the efficacy GIIF’s actions.

Way forward

The Ministry of Finance informed the attendees that the next meeting would be very focused and technical, with an agenda and a list of technical committees which would be set up in order to tackle all urgent issues. The coordination will be done by the Ministry of Finance and these technical committees will not necessarily be chaired by Public sector representatives.

GIIF has been invited to a first technical meeting at the office of the Ministry of Finance on the 3rd March 2011, further to this initial meeting. It is to be noted and clearly understood that main strategic decisions regarding the industry will be taken only after close consultation with GIIF.

Mitigating Systemic Risk – A Role for Securities Regulators

The Technical Committee of the International Organization of Securities Commissions’ (IOSCO) has published Mitigating Systemic Risk – A Role for Securities Regulators, which focuses on the role securities regulators play in addressing systemic risk.

The paper aims to promote discussion amongst securities regulators on the ways in which systemic risk intersects with their mandates and to provide insight into how IOSCO and its members can identify, monitor, mitigate and manage systemic risk. In order to support these discussions IOSCO will facilitate the dialogue amongst securities regulators as well as with the broader international regulatory community and other stakeholders.

In support of this increased focus, IOSCO has established a Standing Committee on Risk and Research (SCRR), to be led by Carlos Tavares, the Chairman of the Portuguese Securities Commission CMVM, whose role will be to coordinate members’ monitoring of potential emerging systemic risks within securities markets. It will be supported in this work by a new Research Unit based at the General Secretariat in Madrid.

Securities Regulators and Systemic Risk

IOSCO has identified reducing systemic risk as one of the three objectives of securities regulation, and in July 2010 it two new principles of securities regulation aimed at addressing systemic risk, namely:

Principle 6 - The Regulator should have or contribute to a process to monitor, mitigate and manage systemic risk, appropriate to its mandate; and

Principle 7 - The Regulator should have or contribute to a process to review the perimeter of regulation regularly.

The discussion paper builds on these principles and begins a process of developing a methodology for the identification, analysis, monitoring and mitigation of systemic risk as well as the promotion of financial system stability.

Key Findings

The discussion paper puts into context the role of securities regulators with respect to systemic risk: the primary ways in which it can develop in securities markets; approaches and indicators that securities regulators may use in seeking to identify sources of systemic risk; and guidance on how securities regulators can act, both to reduce the opportunity for systemic risk to arise and to reduce its impact. The paper’s preliminary findings are that:

1. Disclosure and transparency are critical to identifying the development of systemic risk and to arming regulators with the information needed to take action to address it. Transparency in markets and products is crucial to understanding and mitigating systemic risk, in addition to allowing market participants to better price risk. Securities regulators have a particular responsibility and interest in promoting transparency at the market level as well as adequate disclosure at the product and market participant level;
2. Robust regulatory supervision of business conduct is essential to managing conflicts of interest and the build-up of undesirable incentive structures within the financial system. Without it, incentives can quickly become distorted with drastic consequences such as increased leverage and risk in the system. With it, investor confidence is likely to provide greater stability to the market;
3. Financial innovation and its implications for financial stability should be a focus for securities regulators. Innovation should be encouraged and facilitated where it has the potential to improve the efficiency of the markets or to bring useful products and new participants to the market. Innovation which involves opacity or improper risk management should be carefully monitored;
4. Given the central role of markets in the overall financial system and their capability to generate and/or transmit risks, securities regulators should work with other supervisors to improve the overall understanding of the economics of the securities markets, their vulnerabilities and the interconnections with the broader financial sector and the real economy. Sharing market information and knowledge, will be essential to deliver a truly efficient regulatory response to systemic risk; and
5. It is important for securities regulators to develop key risk measurements relevant to systemic risk arising within securities markets, and improve their understanding and application of tangible steps to mitigate identified systemic risk.

The findings form the basis of robust and effective systemic risk frameworks for securities regulators, however the development of processes to address systemic risk is an evolving field for securities regulators which will require ongoing research. IOSCO aims to continue to engage its members in the development of systemic risk frameworks, particularly through its SCRR.

Regulators’ Actions

IOSCO sees securities regulators as having a key role to play in identifying and mitigating systemic risk, which will involve incorporating a greater emphasis on reducing systemic risk into their everyday tasks and processes. Each IOSCO member will need to determine its own response in relation to its national mandate and regulatory structure, as well as the relative size and characteristics of its securities market. Individual regulators will need to evaluate the scale of their response and the extent to which they can leverage, rather than duplicate, the work of other members of the regulatory community.

International Cooperation

IOSCO recognizes that securities regulators share responsibility for dealing with systemic risk with central banks and prudential regulators and to ensure this happens, cooperation through bodies such as the FSB, the Basel Committee, the International Association of Insurance Supervisors and IOSCO is essential to promote the sharing of information, the combination of expertise and the coordination of actions.

Developments to its company merger provisions position Jersey as a centre of excellence for international corporate finance

A recent development of the Jersey Companies Law will create further opportunities for foreign-owned companies to use Jersey vehicles to access the international capital markets and enhance Jersey’s position as a centre of excellence for international corporate finance activity.

New regulations have been approved by the States Assembly in Jersey and come into force on 23 February, which simplify the process for mergers between Jersey companies and foreign ones.

The improvements to the merger provisions in the Jersey Companies Law should prove an attractive feature to international investors looking at the opportunities to invest in Western markets. The regulations enable Jersey companies to merge with both foreign companies and other foreign bodies incorporated outside of Jersey. They also allow Jersey companies to merge, in any combination, with other Jersey companies or bodies incorporated in Jersey.

Geoff Cook, chief executive, Jersey Finance Limited, welcomed the changes and said that they would be of particular interest in some of the emerging markets such as India. He commented:

‘We know from our visits to India that there is huge interest in bringing Indian capital into Europe, but also a need to recover and repatriate profits made from that capital investment back to India. These provisions will provide institutional investors in India and elsewhere with more options when they establish entities in Jersey to meet investment objectives. Institutional and intermediary clients in Hong Kong and mainland China, for instance, may wish to take advantage of these new provisions when considering the use of Jersey holding companies for listing on exchanges. Furthermore our representative office in Mumbai, opening on 15th March, and our Greater China representative office ensure we effectively promote the benefits of this exciting development of the Jersey company offering to these key markets.’

Any proposed merger involving a body other than a Jersey company will require the consent of the Jersey Financial Services Commission, which must consider the interests of members, creditors and the public and the reputation of Jersey.

SNR Denton Expands its Presence in Africa

SNR Denton announced today that it has doubled the size of its Africa network as 10 new associate firms join, giving the firm the largest footprint of any international law firm on the continent. The firm will now have a presence in 21 countries in Africa.

“Africa is composed of a wide range of dynamic and emerging markets, jurisdictions in which we have been involved with for over 20 years,” said Chief Executives Elliott I. Portnoy and Howard Morris. “Our association with these 10 firms is the next step in our strategy to better position our clients for the increasing levels of investment within Africa.”

With these news associations, SNR Denton’s network of associate firms covers Angola, Botswana, Cape Verde, Guinea Bissau, Mauritania, Mauritius, Morocco, Mozambique, Namibia and Sao Tome e Principe. Additionally, the new associations will include an association with the Portuguese firm, F. Castelo Branco & Associados -- Sociedade de Advogados (FCB & A), which will bring five of that firm’s Africa offices and associate offices into SNR Denton’s Africa network.

“This significant expansion takes SNR Denton into countries where our clients operate, or are looking to expand, and we will be able to provide them with the best local legal expertise in those countries,” said Paul Bugingo, Jeff Krilla and Geoffrey Wynne, the heads of SNR Denton’s Africa Committee. “We have been working with most of the new associate firms for some years now and this just formalizes these well-established and long working relationships with these firms.”

The new associations build upon SNR Denton’s longstanding commitment to developing business opportunities for clients in Africa and clients around the globe with interests in the continent. SNR Denton provides a full range of services to African businesses, governments, and institutions on both inbound and outbound investment opportunities; energy, transport, and infrastructure matters; telecommunications; public private partnerships; and market access, trade regulations, and corporate social responsibility.

In addition to the SNR Denton office in Cairo, our associated firms in Africa are located in:

• Accra
• Algiers
• Angola
• Botswana
• Burundi
• Cape Town
• Cape Verde
• Dar es Salaam
• Guinea Bissau
• Kampala
• Johannesburg
• Lagos
• Lusaka
• Mauritania
• Mauritius
• Morocco
• Mozambique
• Nairobi
• Namibia
• Rwanda
• São Tome e Principe
• Tripoli

Seychelles: Private Trust Company (PTC)

Private Trust Companies (PTCs) are proving to be increasingly popular and are allowed in numerous international financial centres, including Jersey, BVI, Cayman Islands, Mauritius, New Zealand and Bermuda. Schedule 5 of the proposed new International Corporate Service Providers Act, 2011 (the “New ICSP Act”) reflects the succinct and clearer approach of the Cayman Islands (adapted as appropriate).

Under the proposed New ICSP Act:

• A Seychelles PTC which only conducts “connected trust business” and is registered with SIBA is exempted from the trustee licensing requirement of the ICSP Act. A annual PTC registration fee of US$800 is proposed (ie. this is for annual registration / renewal as a PTC, and is separate and distinct from the annual $100 IBC renewal fee under the proposed Companies Act, 2011)
• The test for determining whether a PTC carries on “connected trust business” for the purposes of the New ICSP Act looks solely at the relationship between the settlors/ contributors of the underlying trust assets: each settlor/contributor (of each trust of which the PTC is trustee) must be a connected person to each other. The scope of “connected person” is broadly defined; it includes relationships by blood and marriage between individuals as well as companies within the same group and certain shareholder and company relationships. There is no requirement for the beneficiaries to be connected persons. The majority of PTCs, which typically are set up by and for individual families, should satisfy the connected persons’ test without difficulty.
• A PTC must be a Seychelles IBC, whose secretary is a licensed trustee services provider and that at all times its secretary shall be a person holding a trustee services licence under the New ICSP Act.
• As a result of the above, it is equally being proposed that in view that the PTC will be an IBC under the new Companies Act, 2011, and therefore be required to have a secretary, that the secretary shall be a company which holds a licence to provide both international corporate services and trustee services.
• A PTC shall use the words “Private Trust Company” or the abbreviation “PTC” in the name by which the company is registered as an IBC under the Companies Act, 2011.
• A PTC shall not in any manner solicit or receive contributions in respect of trusts of which it is trustee, from (i) the public; or (ii) persons other than those who are, in relation to each other, connected persons.

Seychelles: Proposed Trusts Act

The aim of the proposals is to modernize and improve on Seychelles’ existing trust law, the International Trusts Act, 1994 (“ITA”), and to provide a stronger basis for building Seychelles trust business. Growth in the trust business is an important part of taking the next steps as a growing international financial centre, and in developing value-added offshore services and increasing local economic benefit.

Proposed Trusts Act - White Paper [28.28KB]

Proposed Trusts Bill, 2011 [169.86KB]

Appleby: When it comes to trusts, are you a control freak?

Topic:		When it comes to trusts, are you a control freak?
Authors:		Naresh Chand
Published:		Feb 2011
Synopsis:		A growing number of offshore jurisdictions have responded to settlors’ desires to retain control over settled assets by introducing legislation that enables them to categorically reserve certain powers and rights over a trust.
Practice Area:		Private Client & Trusts
Jurisdiction:		Bermuda
Download:		When it comes to trusts, are you a control freak?

CDP Mauritius Bulletin - February 2011

This bulletin provides an overview of the financial services industry and recent developments in Mauritius, including legal and regulatory amendments, important judgments and significant transactions. In this issue, you will find:

• Conyers advises Vedanta on acquisition of Cairn India Limited

• Indemnification and insurance of directors and employees under The Companies Act 2001 of Mauritius

• Mauritius signs Double Taxation Avoidance Agreement and Investment Promotion and Protection Agreement with Republic of the Congo

• Re-domiciling a Company to Mauritius: an overview

This article is available in PDF Format, click below to view:

Mauritius Bulletin - February 2011

Never the Twain Shall Meet? Addressing the Disconnect between Banks’ Financial and Regulatory Reporting

Authors: Paul Klumpes, Peter Welch
Source: EDHEC Financial Analysis and Accounting Research Centre Position Paper

This paper reviews the arguments for and against the decoupling of capital ratio calculations based on IFRS from those based on Basel II. We analyse recent trends in both accounting and regulatory supervision after the financial crisis and identify areas where there are still deficiencies in the transparency of IFRS-based financial reports and regulatory-based capital disclosures and calculations. We find that the variation in disclosure practices across IFRS and BIS-based capital estimations is significant for a sample of major European banks. We also identify how, for a large Swiss bank, variations in IFRS asset and capital bases for capital ratio calculations can make disclosures more transparent. We find evidence that the extent of variation between regulatory-based capital and IFRS-based capital is related to the size of the bank, the extent of off-balance-sheet activities and subordinated debt, the net interest margin, return on assets, value added, and productivity per employee. Variation in disclosure of the leverage ratio is related to bank size, subordinated debt exposure, return on assets, and cost efficiency. We recommend that banks enhance the scope and nature of the reconciliation of IFRS to BIS-based capital ratios to improve the efficiency of markets in reducing information asymmetry about these variations.

This research was produced in association with the ICFR (International Centre for Financial Regulation).

Never the Twain Shall Meet? Addressing the Disconnect between Banks’ Financial and Regulatory Reporting

Guernsey’s trust sector eyes opportunities in the emerging markets

Debate at a recent trusts forum in Guernsey has highlighted how the local trust sector is increasingly keen to explore opportunities in the emerging markets, according to Peter Niven, Chief Executive of Guernsey Finance.

Speaking at the event titled, The Future of Trusts – Guernsey, both Michael Betley, Managing Director of Trust Corporation of the Channel Islands and Paul Hodgson, Managing Director of Butterfield Trust in Guernsey, highlighted the importance of looking further afield to the emerging markets for new business going forward.

“The comments from these leading fiduciary professionals locally are a significant endorsement of the work that Guernsey Finance has been leading in the emerging markets,” said Mr Niven.

“They highlight the fact that while our fiduciary sector remains buoyant, we cannot be complacent and need to look to the future. We have to attract business not just from our traditional centres such as London but also from developing economies where there are increasing numbers of high net worth individuals looking for a safe and secure home for their wealth and assets.

“Guernsey has a strong heritage in providing these fiduciary solutions and our experience and expertise in wealth management is a key message that we are emphasising to advisers and clients in these emerging markets. We are aware that attracting business from these countries is likely to have several more hurdles to overcome than usual but that is why we need to establish our roots early. Guernsey Finance has been pushing back the boundaries in terms of establishing the name and brand in China and India and we have plans to visit Russia during the first half of this year. It is encouraging to hear that our efforts are appreciated and indeed, supported by the industry and we look forward to working with an even greater number of firms going forward.”

Mr Hodgson told delegates at the event that fiduciaries could not rely on simply servicing existing clients or attracting business from traditional centres. He said that the UK market is still important but there is a need to look further afield.

It remains the case that there are also opportunities in the US where Guernsey can provide a safe and secure location for well advised structures. Providers need to be aware of US-related developments, such as FATCA and the Dodd-Frank Act but there is a space for Guernsey firms which can offer high quality and complex solutions to perhaps a smaller number of larger value clients.

Mr Hodgson added that the economic growth in Asia means that it offers the greatest potential. His firm has been involved in the work of Guernsey Finance and has won business from the Far East. There are practical challenges, in particular with the way the structuring is presented and therefore the fees that can be charged. Cayman and the British Virgin Islands are well established in the region but Guernsey has substantial breadth and depth to its offering and – unlike the Caribbean region – a time zone which allows business to be conducted with the Far East during the same day.

Mark Lea, Partner at Lea & White in Hong Kong, spoke at the event on the challenges of developing a successful Chinese private client portfolio. He noted that there are potential opportunities for attracting private client business from the country but the culture means that centres such as Guernsey have to start building relationships as early as possible.

Speaking after the conference, Mr Betley said: “When China liberalises its attitudes to capital markets and allows its citizens to invest abroad it is predicted that there will be a wave of opportunities for centres like Guernsey but to take advantage of that we must get to know these markets. By being in the region we too can share in the new opportunities which the increasing wealth and resources in that region will generate. We also learnt that whilst our skill set is highly regarded and sought after, culturally and commercially we have a lot to learn from understanding how business is won and undertaken and it will be a lot harder than we have been used to. However as our traditional markets retract it is essential for us to look elsewhere.”

The comments come as reports show that China has overtaken Japan as the world’s second-biggest economy and GK Dragonomics, a Beijing-based economic consultancy, is predicting that China will replace the US as the world’s top economy in about a decade. In addition, the latest in a series of ‘The World in 2020’ reports from PwC concluded that the global financial crisis has accelerated the shift in power to emerging economies, including Brazil, Russia, India and China – the so-called BRICs.

Reforming finance: are we being radical enough?

Speech by Adair Turner, Chairman, FSA

Clare College, Cambridge

2011 Clare Distinguished Lecture in Economics and Public Policy

Between 2007 and 2009 the financial systems of the developed world suffered a major crisis, the after-shocks of which we are still seeking to manage. As a financial crisis, it was as big as anything in 75 years; in the UK you have to go back to before the First World War to find an equivalent scale of bank losses or liquidity runs. And the crisis has had major macroeconomic and human consequences – unemployment, real income loss, some house owners in negative equity, and taxpayers burdened for a decade or more with dramatically increased government debts.

So, not surprisingly, the crisis provoked much discussion of the need for radical reform...

Read the full speech [PDF]

Speech slides [PDF]

STEP Indian Ocean Conference 2011

STEP Mauritius in association with the branches of STEP Arabia, STEP Cape Town, STEP Johannesburg & STEP Seychelles are pleased to present:

GLOBAL PRIVATE CLIENT CROSSROADS - MAURITIUS, REGIONAL AND GLOBAL PERSPECTIVES

STEP Indian Ocean Conference

24-25 March 2011

Intercontinental Resort Balaclava Fort, Mauritius

Program & Booking Form

STEP Mauritius 2011 Regional Conference: Global Private Client Crossroads

Start date:24 March 2011End date:25 March 2011

Location:Intercontinental Mauritius Resort

Mauritius

Organiser:STEP Worldwide

Contact:Prisca Isabelle - +230 213 1111

Description:STEP Mauritius 2011 Regional
Conference in association with the branches of Arabia, Cape Town, Johannesburg & Seychelles.

Cost:STEP Members: US$400/MUR 12,000 Non-Members: US$500/MUR 15,000

CPD:13.5

Additional information:Conference Programme Focus:
• Mauritius unique hybrid legal system
• The Future of International Financial Centres in the light of G20 and other International Initiatives
• Trusts, Foundations & Waqfs
• Using Mauritius for tax planning in the region and beyond
• Regional Developments with particular focus on South Africa
• Overview of UAE & Seychelles Structure for Private Clients
• UK Non-Dom rules and impact on offshore Trusts
• Legal professional privilege / banking secrecy and implications under AML and MLAT rules and
exchange of information agreements

Downloads:Program & Booking Form

UK - A new approach to financial regulation: building a stronger system

Issued: 17 February 2011

Open date: 17 February 2011

Close date: 14 April 2011

This consultation document provides further detail on the Coalition Government’s proposals for reforming the framework of financial regulation in the UK. It builds on the Government’s earlier consultation A new approach to financial regulation: judgement, focus and stability published on 26 July 2010, and the summary of consultation responses published on 24 November 2010.

The Government welcomes responses from any interested organisations or individuals.

• A new approach to financial regulation: building a stronger system (PDF 1.3MB)

Contact details

financial.reform@hmtreasury.gsi.gov.uk

Post

Financial Regulation Strategy

HM Treasury

1 Horse Guards Road

London

SW1A 2HQ

Related links:

• A new approach to financial regulation: judgement, focus and stability
• The structure of UK financial regulation

Seychelles: Proposed International Corporate Service Providers Act

The global economic crisis has intensified the debate about the role of International Financial Centres. Concerns have been expressed with regards to such issues as transparency, information exchanges on mutually agreed bases and the overall strengthening of the international regulatory architecture of international financial centres. The international movements today are aimed towards reducing global inequality, the promotion of a level playing field and fair competition and the combating and prevention of financial crimes.

The proposed new International Corporate Service Providers’ Act (the “ICSP Act”) aims at strengthening and enhancing the existing regulatory and compliance framework by adopting standards stemming from the above. The proposals do take into account the issue of competitiveness and the industry may take comfort in the fact that the proposals do not erode that but rather will increase the attractiveness of the Seychelles as a jurisdiction of substance and one which is safe.

The new Act has been drafted by taking into consideration the already existing international best standards of practice, which have been adopted and implemented by a number of reputable and successful international financial centres.

Proposed International Corporate Service Providers Act - White Paper [40.94KB]
Proposed International Corporate Service Providers Bill, 2011 [87.08KB]

Trillions of dollars at stake from climate change over next 20 years

• Climate change could contribute as much as 10% to portfolio risk over the next 20 years
• Investors could benefit from increased allocation to infrastructure, real estate, private equity, agriculture land, timberland and sustainable assets
• Investment opportunities in low carbon technology could be as high as $5 trillion by 2030
• Institutional investors have numerous options for capitalising on opportunities and managing risks arising from climate change

Continued delay in climate change policy action and lack of international coordination could cost institutional investors trillions of dollars over the coming decades, according to research released by Mercer and a group of leading global investors representing around $2 trillion in assets under management .

Andrew Kirton, Chief Investment Officer at Mercer, commented: “Climate change brings fundamental implications for investment patterns, risks and rewards. Institutional investors should be factoring long-term considerations, such as climate change, into their strategic planning. Mercer is pleased to have had the opportunity to kick start such strategic discussions with a group of leading global investors.”

The report Climate Change Scenarios – Implications for Strategic Asset Allocation analyses the potential financial impacts of climate change on investors’ portfolios, identified through a series of four climate change scenarios playing out to 2030. The report identifies a series of pragmatic steps for institutional investors to consider in their strategic asset allocation.

In the report, a framework is outlined that can be used by institutional investors to enhance their understanding of climate-related investment risks and opportunities across asset classes and regions. Mercer’s “TIP Framework” estimates the rate of investment into low carbon technologies (T), the impacts (I) on the physical environment and the implied cost of carbon resulting from global policy (P) developments across the four climate scenarios.

Some of the key findings show that by 2030:

• Climate change increases uncertainty for long term institutional investors and as such, needs to be pro-actively managed.
• Investment opportunities in low carbon technologies could reach $5 trillion.
• The cost of impacts on the physical environment, health and food security could exceed $4 trillion.
• Climate change related policy changes could increase the cost of carbon emissions by as much as $8 trillion.
• Increasing allocation to “climate sensitive” assets will help to mitigate risks and capture new opportunities.
• Engagement with policy makers is crucial for institutional investors to pro-actively manage the potential costs of delayed and poorly co-ordinated climate policy action.
• Policy developments at the country level will produce new investment opportunities as well as risks that need to be constantly monitored.
• The EU and China/East Asia are set to lead investment in low carbon technology and efficiency improvements over the coming decades.

The launch of the report and the Mercer TIP Framework represents a collaborative endeavour led by Mercer which involved 14 global institutional investors, and was supported by the International Finance Corporation, a member of the World Bank Group, and Carbon Trust. Grantham LSE/Vivid Economics were engaged to lead components of the research on the economic impacts of climate change scenarios and a research group comprised of industry practitioners and academics was consulted in the development of the model.

Project partners, in commenting on the research and its outcomes, said;

"That climate change poses significant financial and economic risks has only been accentuated by the tens of billions of dollars in losses due to recent climate related natural disasters such as the floods in Australia and Pakistan and the wildfires in Russia. This study makes a significant contribution to our ability to measure the level of risk that climate change creates for investment portfolios. Managing that risk in a way that maintains the returns expected by beneficiaries is a crucial responsibility for the management of these investment portfolios. This report provides some practical steps that investors can take today to shift their asset allocation to manage climate change risks and finance the much needed infrastructure for a lower carbon future." Rachel Kyte, Vice President, IFC

"This report is unique and ground-breaking in quantifying the increased portfolio risk arising from global efforts to tackle climate change. It demonstrates that unless this risk is tackled intelligently by increasing exposure to climate sensitive assets, then long term rewards could fall. The findings undermine the notion of a conflict between ‘green investing’ and acting in beneficiaries long term financial interests. This will have profound implications for fiduciary duties and places a clear obligation to increase analysis of the consequences of climate change for portfolio management."Bruce Duguid, Head of Investor Engagement, The Carbon Trust.

"Why does climate change matter to institutional investors like the Environment Agency pension fund? It matters because we know that we will need to be paying out pensions to our fund members well into the 21st century. We think all pension funds will need to adopt a climate change-proofed financial investment strategy in the future to enable them to fulfil their fiduciary duties. We also want our pensioners to retire into a similar environment than we enjoy today and not one that is affected by the extremes of climate change that could reduce their life expectancy." Howard Pearce, Head of Environmental Finance and Pension Fund Management, Environment Agency.

"Climate change is a global risk factor that all long term investors should take into account when formulating investment strategy. This in-depth analysis will provide valuable input to our long term strategy reviews." Tom A. Fearnley, Investment Director, Norwegian Ministry of Finance, Asset Management Department.

“In early 2010, we set a goal to better understand how climate change could be factored into our broad investment actions. For example, should the risk and return impacts of global warming modify our allocation between and within asset classes? The Mercer study has helped clarify our thinking on some of these uncertainties. In our view, the report makes an original contribution by giving financial meaning to recognized climate science (Stern, IPCC) and provides ideas on constructing portfolios acknowledging climate trends. It also raises many more questions and hopefully will stimulate additional in-depth work around investment capital and climate change.” Doug Pearce, CEO/CIO for British Columbia Investment Management Corporation (bcIMC)

"CalPERS has been a leading advocate for environmental and climate change issues for many years and recognizes these to be key risks for long term investors. This opportunity to collaborate with institutional investors from around the world to look at the impact of climate change scenarios on investments helps us to shape our strategic thinking in this area and better integrate our programs, policies and risk management." Joe Dear, CIO, CalPERS.

“This project has given us insight into the complexity of the effects climate change could have on the risk and return of our portfolio. Climate change proves to be a source of uncertainty. Although there is currently no straightforward answer to manage this uncertainty, we will continue to address this issue in our investments activities.” Jaap van Dam, Managing Director Strategy, PGGM Investments.

"Participating in this project has not only given us better insight of what impact climate change could have on asset classes and the long term performance of our portfolio. It has also given us enhanced tools for our strategic asset allocation analysis." Johan Magnusson, Managing Director of Första AP-fonden (AP1)

“VicSuper has taken an active position in integrating sustainability into its investment strategy. This has involved investing in low-carbon equity funds such as the Vanguard Carbon Aware International Shares Fund, as well as in venture capital clean technology which in turn invests in technology and products providing solutions to environmental challenges. Our participation in this Climate Change Scenarios report has assisted our thinking in how to integrate climate change risk and opportunity into our investment strategy, and also in ways to access a robust and defensible methodology to assess the possible risk and return implications of climate change. We do this for the benefit of our more than 250,000 members.” Peter Lunt, Head of Investment Research, VicSuper

A series of presentations and seminars relating to the ‘Climate Change Scenarios – Implications for Strategic Asset Allocation’ study can be found by visiting Mercer’s responsible investment website (http://www.mercer.com/climatechange)