The Maltese Trusts and Trustees Act revisited: watch this space

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1 Trusts & Trustees, Vol. 21, No. 7, September 2015, pp The Maltese Trusts and Trustees Act revisited: watch this space Anthony Cremona* and Liana Micallef** Abstract The 2014 Maltese trust law amendments were aimed at further regulating trusts and trustees with a view towards achieving greater clarity and certainty, and updating Maltese trust law so as to reflect certain important international developments in the area. These amendments to the various trust law provisions touch upon a number of important matters including: the duration of trusts, settlor reserved powers, duties of trustees, beneficiaries rights (including the right of information), protective trusts, charitable trusts as well as certain important regulatory developments relating particularly to the requirements for authorisation of trustees and other fiduciaries, and the introduction of Private Trust Companies. Introduction In 2009, the Malta Financial Services Authority (MFSA) initiated a thorough review process of the Trusts and Trustees Act (TTA), 1 with a view towards improving the applicable legislative and regulatory framework regulating trusts and trustees in Malta. This exercise coincided with the fifth anniversary of the introduction of the trust into the Maltese civil law system, thereby making the trust available also to Maltese residents and launching Malta as a veritable trust jurisdiction with its own domestic trust practice in effect, prior to that Malta was already a trust jurisdiction since 1988, but there can be no doubt that the 2004 legislative project gave the Maltese trust a new impetus. The 2009 review process led to a consultation document on the proposed amendments to the TTA and other related legislation issued by the MFSA on 14 December 2012, which included a draft revised version of the TTA. In presenting the amendments the MFSA recognized that the 2004 legislative project has: served as clear guidance for trustees to carry out their functions according to law. The consolidation of a law relating to trusts created certainty and this is reflected in the significant increase in the number of authorised trustees operating in Malta. 2 Following the request for feedback from the industry on the MFSA s consultation document, a feedback statement was issued by the MFSA outlining the comments received from members of Malta s financial services industry. 3 This consultation process was followed by Bill 32 of 2013, which was published on 24 * Dr Anthony Cremona is a partner heading the trusts and foundations team at GANADO Advocates Valletta, Malta Tel: (+356) ** Dr Liana Micallef is an associate within the trusts and foundations team at GANADO Advocates Valletta, Malta Tel: (+356) Ch 331 of the Laws of Malta, the TTA 5http:// accessed on 1 March Consultation Document entitled Consultation on the Proposed Amendments to the Trusts and Trustees Act and other Related Legislation dated 14 December 2012, 3 5http://mfsa.com.mt/Files/Announcements/Consultation/Documents/141212%20Consultation%20Document%20for%20amendments%20 to%20tta%20and%20other%20laws%2014_12_2012.pdf4 accessed on 1 March October accessed on 1 March ß The Author (2015). Published by Oxford University Press. All rights reserved. doi: /tandt/ttv004 Advance Access publication 17 June 2015

2 734 Articles Trusts & Trustees, Vol. 21, No. 7, September 2015 December 2013 and culminated in the enactment of Act XI of 2014, published on 25 April 2014, which enacted the amendments to the TTA, now in force. These amendments are aimed at enhancing the Maltese legislative framework that regulates trusts governed by Maltese law and trustees resident or operating in or from Malta, and provide for greater certainty. At the same time they also bring Malta s trust law in line with international developments in the area by introducing new concepts and amending existing ones. The amendments range from substantive changes to Maltese trust law, to regulatory developments aimed at putting trustees operating in or from Malta on more solid ground and increasing further the standards that they are expected to maintain, to purely cosmetic (and not so cosmetic) changes aimed solely at clarifying certain doubts that practitioners would have raised with the MFSA over the years (again, to improve the overall quality of the law). As was noted in the recent STEP International Conference held in Malta in March 2014: The amendments...to the Trust and Trustees Act are aimed at achieving a balance between making Malta a more attractive trust domicile, through the introduction of new features such as the concept of family trusts, whilst ensuring that the necessary safeguards are in place through the re-enforcement of the relevant regulatory regime. 4 The amendments range from substantive changes to Maltese trust law, to regulatory developments aimed at putting trustees operating in or from Malta on more solid ground and increasing further the standards that they are expected to maintain While the amendments made did not go so far as to amend Maltese trust law to accommodate noncharitable purpose trusts, it is noteworthy that the possibility of setting up a purpose foundation for any lawful purpose, even if not charitable, is still possible under Maltese Civil law regulating foundations. 5 This article seeks to outline some of the most important of these recent amendments. The salient amendments at a glance The duration of trusts One amendment that has brought trusts governed by Maltese law in line with trusts governed by the laws of other jurisdictions, is that relating to the duration of trusts. The TTA has in fact been amended to extend the permitted duration of trusts by 25 years to 125 years (from the previous 100 years). 6 This amendment makes it possible for yet another generation of family members to benefit under a family trust governed by Maltese law, while respecting, at the same time, the principle that entails are generally prohibited by Maltese law. The amendment also provides further security to the settlor since, within the context of a family trust, the settlor is able to preserve the family wealth and protect it from possible dissipation for another 25 years, before it is distributed upon termination. Although at present there is a mismatch between the permitted duration of a trust governed by Maltese law and the permitted duration of a Maltese private foundation (the latter still being capped at a maximum of a 100 years), it is expected that the latter will shortly be amended to bring the law regulating foundations in line with the Maltese law on trusts. (together with a host of other proposed amendments that are also aimed at further enhancing the legislative framework regulating Maltese foundations). 4. The Honourable Minister of Finance Prof. Edward Scicluna, delivering the opening session of the STEP International conference, Global Business in a Challenging Environment held in Malta, 7 March Second Schedule to the Civil Code, ch 16 of the Laws of Malta 5http:// accessed on 1 March Amendment to art 12(1) of the TTA.

3 Trusts & Trustees, Vol. 21, No. 7, September 2015 Articles 735 Settlor reserved powers Prior to the coming into force of these amendments, although the TTA did not expressly provide for settlor-reserved powers, it was any way possible for the settlor to reserve certain powers to himself, provided that the intrinsic, inderogable characteristics of the trust are respected, as are the Knight v Knight 7 certainties that the traditional trust requires for validity. This notwithstanding, with the aim of regulating specific circumstances wherein the settlor may reserve powers under the terms of the trust a new article Article 14A has now been included in the TTA specifically dealing with the powers that can be reserved by the settlor. As a result of this new provision, without prejudicing certain other powers that can be validly reserved by the settlor pursuant to other provisions of the TTA (such as the power of revocation of the trust, and the power to amend the trust instrument), 8 a settlor may now also reserve or grant to himself: i. any beneficial interest in the trust property; ii. any power to appoint, add or remove trustees, protectors or beneficiaries; and iii. any power to appoint an investment adviser or investment manager, and this without such reservation affecting the validity of the trust or delaying the trust from coming into effect. This new provision is aimed at providing more certainty to the settlor as to the kind of powers that he may retain, without undermining the validity of his intention to create the trust and to dispose of his assets in favour of the trustees for the benefit of the indicated beneficiaries. In effect this new provision merely sanctions the reservation of those powers that are, in practice, regularly and customarily reserved by settlors and follows the legislative approach of seeking clarity and certainty as much as possible, as opposed to leaving matters for the courts to determine. This was the same approach adopted by the legislator in respect of the right of beneficiaries and other interested parties to information in respect of a trust (where the legislator opted to, effectively, codify the principles that were laid down by leading international case law on the matter, thereby providing more certainty and predictability). This new provision is aimed at providing more certainty to the settlor as to the kind of powers that he may retain, without undermining the validity of his intention to create the trust and to dispose of his assets This provision goes further and provides reassurance also to the trustees by stating that those trustees, who act in accordance with the exercise of the powers of the settlors, that have been reserved to himself in accordance with this new provision, will not be considered to be acting in breach of trust. 9 This sub-article is probably the more significant aspect of this legislative development in view of the peace of mind that it grants trustees acting in accordance with the exercise of powers reserved by the settlor, thereby eliminating all doubt and uncertainty as to the risk of liability on the part of the trustee for acting in accordance with the exercise of reserved powers. The Saunders v Vautier rule and protective trusts The TTA expressly reflects the Saunders v Vautier 10 rule by stating in Article 17(3) that, all the beneficiaries who are in existence and have been ascertained (provided none of them are interdicted or a minor) may request the trustee to terminate the trust and 7. Knight v Knight (1840) 49 ER When these are specifically retained by the settlor himself in the trust instrument, art 15(5) TTA A(2) Where a power mentioned in sub-article (1) has been reserved or granted by the settlor, a trustee who acts in accordance with the exercise of the power shall not be considered to be acting in breach of trust. 10. Saunders v Vautier [1841] 41 ER 482.

4 736 Articles Trusts & Trustees, Vol. 21, No. 7, September 2015 distribute the trust property. The new amendments to this clause preclude this rule from applying in the case of protective trusts, eg when the interest of a beneficiary is subject to restriction on alienation or dealing, or is subject to termination in the event of the beneficiary becoming bankrupt. The rationale behind precluding the applicability of the Saunders v Vautier rule from applying to protective trusts is that in these cases the rule may not always operate in the best interests of the protected beneficiaries, who would otherwise have the power to terminate the trusts in their favour and would effectively undermine the very nature of the protective trust. 11 Allowing the rule in Article 17(3) of the TTA to apply to such cases would also go against the wishes of the settlor who, by creating a protected interest, was essentially seeking to protect beneficiaries from themselves. The rationale behind precluding the applicability of the Saunders v Vautierrule from applying to protective trusts is that in these cases the rule may not always operate in the best interests ofthe protected beneficiaries Duties of the trustee The amending Act has specifically introduced an express duty on trustees to avoid any conflicts of interest and, as a result, a definition of conflict of interest has been introduced into the TTA as follows: any situation in which the trustee s personal interest or the interests which the trustee owes to any other person, can lead to or can be perceived as leading to a situation where such interests conflict with the fiduciary duties which the trustee owes to the beneficiaries. While this duty to avoid any conflict of interest applied to trustees before the promulgation of these amendments since trustees are anyway bound by fiduciary obligations (that oblige fiduciaries, subject to the express terms of any instrument in writing, excluding, or modifying such duty) 12 the legislator felt the need to expressly make reference to this duty also in the TTA, highlighting, in this way, the importance that Maltese trust law gives to the integrity of the office of trusteeship and to the onerous duties that this office entails. 13 A noteworthy difference brought about by the amendment when compared to the position prevailing previously is that whereas in terms of the general duties of fiduciaries, it was possible for the duty to avoid conflicts of interest to be excluded or modified in an instrument in writing, the obligation on trustees is absolute. The legislator felt the need to expressly make reference to this duty also in thetta, highlighting, in this way, the importance that Maltese trust law gives to the integrity of the office of trusteeship and to the onerous duties that this office entails The amendments have also extended to professional trustees the obligation that previously applied only to private trustees (who are exempt from authorization by the MFSA, under the notarial procedure), 14 to, upon accepting their appointment, draw up an inventory of the trust assets and declare that the inventory includes all the trust property of which the trustee is aware. 15 The new amendments to the TTA have also clarified that trustees are obliged to keep accounts and records of their trusteeship for a period of not less than ten years from the date of the termination of the trust, or their trusteeship, whichever happens 11. Consultation Document, In terms of art 1124A of the Civil Code, Ch 16 of the Laws of Malta, which specifically refers to the duty to avoid any conflict of interest. 13. art 21(1) of the TTA. 14. In terms of art 43A(3) of the TTA. 15. art 21(2)(b) of the TTA.

5 Trusts & Trustees, Vol. 21, No. 7, September 2015 Articles 737 earlier. 16 The MFSA also announced its intention to explore the possibility of storage of documents in electronic format with a view towards substantiating this requirement in the Code of Conduct for Trustees after assessing the various implications arising therefrom. 17 Right to information Amendments have also been made to the information clause contained in Article 29 of the TTA. Already back in 2004, to ensure certainty and clarity, Malta boldly sought to codify the prevailing rules applicable to the right of beneficiaries to information as these emerge from leading international judicial authority on the matter. Given that the accountability of trustees is paramount and should be ensured at all times, the MFSA removed the possibility of subjecting to the terms of the trust the obligation on the part of the trustee to, so far as is reasonable and within a reasonable time of receiving a request in writing to that effect, provide full and accurate information as to the state and amount of the trust property, including the accounts of the trust, and the conduct of the trust administration to any beneficiary of the trust. 18 This now renders the obligation on the trustee to provide information as to the state of the trust property more consistent with the other obligation on trustees to keep accurate accounts and records of their trusteeship and to, upon a request by any beneficiary, disclose such accounts and records to such beneficiary. 19 It is immediately noticeable that these provisions refer to the reactive duty on the part of the trustee to provide information upon receiving a request from a beneficiary (with the obligation to provide an actual copy of the accounts remaining subject to the terms of the trust). Indeed, despite this amendment, the MFSA safeguarded the trustee s power to suspend until such time as a discretion is exercised in favour of a beneficiary, the obligation to inform such beneficiary that he may benefit under the trust (or that he forms part of a class that may so benefit) 20 or to inform the beneficiary only within a reasonable time after the death of the settlor when the trust instrument contains an outright prohibition of disclosure (which is frowned upon and consequently prohibited by Maltese law). 21 Beneficiary rights The amendments to the TTA have left intact and largely unaltered the various rights specifically granted to the beneficiaries of trusts governed by Maltese law. The Act, as amended, has however clarified the question as to whether a beneficial interest in a trust is inheritable, by emphasizing that such rights are personal to the beneficiary and are not inheritable, unless this is specifically so provided by the terms of the trust. It has also been clarified that this amendment was also intended to ensure that heirs may only have rights as to any economic benefit that a beneficiary may have and not any other rights, such as rights to information. The MFSA has explained that: the proposed amendment was not meant to introduce any new principle in Article 9(2) but rather reaffirm the civil law principle that rights of a beneficiary are personal to the beneficiary and as such cannot be transmitted by inheritance. 22 TheAct,asamended,hashoweverclarifiedthe question as to whether a beneficial interest in a trust is inheritable, by emphasizing that such 16. A similar obligation mirroring this was also extended to certain categories of professionals (such as lawyers and accountants) acting as trustee in the course of carrying out their profession (and as an ancillary activity), who are consequently exempt from the requirement to seek authorisation. Such professionals have had their duty to maintain proper records of clients assets extended to 10 years from the date of termination of the trust or the trusteeship (whichever occurs earlier) from the previous five years (art 43(7)(d)). 17. Feedback Statement to MFSA Consultation Document on the Proposed Amendments to the Trusts and Trustees Act and other Related Legislation (dated October 2013, ref , the Feedback Statement ) Consultation Document 7 par 2.14, art 29(1) of the TTA as amended. 19. Contained in art 21(4) of the TTA. 20. art 29(4) of the TTA. 21. art 29(5) of the TTA. 22. Feedback Statement, 4.

6 738 Articles Trusts & Trustees, Vol. 21, No. 7, September 2015 rights are personal to the beneficiary and are not inheritable, unless this is specifically so provided by the terms ofthe trust All this is aimed at strengthening obligations of accountability and at instilling further confidence in persons using the Maltese legal institute. Limitation of actions coupled with enhanced duties for fiduciaries The amendments to the TTA have introduced another significant amendment finally making it impossible for trustees to acquire trust assets by prescription. 23 As a result of this amendment, interested persons seeking to sue trustees for fraud or to recover trust property need not worry about their action being time-barred as their action in respect of any fraud to which the trustee was a party or to which he was privy, or for the recovery from the trustee of trust property in his possession or control or previously received by the trustee and converted to his use, is no longer subject to the 30 year limit, which has been removed. According to the MFSA this was done to reaffirm that a trustee can never acquire by prescription because this goes against the nature of fiduciary obligations. 24 The amendments to the TTA have introduced another significant amendment finally making it impossible for trustees to acquire trust assets by prescription Coupled with this amendment, two new sub-articles have been introduced to guarantee that fiduciary obligations are expressly imposed by law on all persons in control of trust property, imposing on them an obligation to preserve the trust assets, even pending acceptance of the trust, and ensuring that such persons shall be bound by fiduciary obligations towards the beneficiaries. 25 Charitable trusts The introduction of two new provisions, Articles 24B and 24C, enable the terms of a trust established for a charitable purpose to provide for the appointment of an enforcer and his resignation or removal from office. The duty of the enforcer is that of ensuring that the trustee administers the trust in accordance with the terms of the trust and to promote the terms of the trust. In fact the TTA also imposes a duty on the enforcer to take action against the trustee in case of breach of trust. The office of the enforcer is seen by the regulator as important in ensuring that the trust and its effects are duly enforced in situations where a trust has no beneficiary (as is often the case with trusts set up for charitable purposes). 26 This amendment also brings Maltese trust law in line with the laws of other jurisdictions which specifically cater for the office of an enforcer. The new amendments also provide that in the case of a charitable trust which has ceased to provide a suitable and effective method of using the trust property or when the purpose of the trust has ceased to be charitable for any reason, the Court has the power, on an application made to it by the trustees or the enforcer, to declare another charitable purpose for which the remaining trust property is to be held. When making such a declaration the Court is to consider such charitable purposes that are consistent with the original intentions of the settlor. This amendment aims at ensuring that the intrinsic charitable nature of a trust is maintained as much as possible, while also taking into account the original intentions of the settlor. 23. Amendment to the proviso to art 41 of the TTA. 24. Consultation Document, art 19(5) of the TTA. 26. The appointment of the enforcer is being proposed since such trusts do not have any beneficiaries to enforce the terms of the trust. Consultation Document, 7.

7 Trusts & Trustees, Vol. 21, No. 7, September 2015 Articles 739 This amendment aims at ensuring that the intrinsic charitable nature of a trust is maintained as much as possible, while also taking into account the original intentions of the settlor Regulatory aspects Authorisation and regulation of trustees and other fiduciaries Various important amendments have been introduced dealing with the authorisation and the regulation of trustees and related regulatory aspects. While the MFSA s initial proposal to limit authorisation only to corporate trustees was not taken on board in the end, 27 the amendments clarify the authorisation requirement by stating that any person (whether an individual or a body corporate) who is residing in Malta or who operates in or from Malta shall require authorisation to act as a trustee. 28 Thankfully, this same approach has also been taken with regards to those persons who act as mandataries or administrators of private foundations, 29 who now only require authorisation to the extent that they are either residing in Malta or are operating in or from Malta. In this way the previous (unfortunate) situation that came about as a result of the rule requiring authorisation of administrators of private foundations being imposed before the exemptions/ exceptions were enacted (and thereby requiring any administrator of a Maltese private foundation to be authorised by the MFSA, even if not resident in Malta and not operating in or from Malta) has been addressed. Although not widely used, since the majority of structures would invariably have opted for Malta-based administrators (that would anyway require authorisation), it is expected that those non- Malta-based administrators that were constrained to seek authorisation would be able to surrender their authorisation. The TTA has also further clarified the authorisation requirement by providing for a definition of operating in or from Malta which requires a regular presence in Malta and does not include sporadic acts (thereby aligning the law with other financial services legislation that has already incorporated this concept). This has, as a result, clarified the situation that foreign trustees of Maltese trusts or foreign administrators of foundations governed by Maltese law, who are operating from outside Malta, are not required to be authorised, further enhancing Malta s offering not just as a base from where to conduct one s activities (that lead to the re-domiciliation of trustees from overseas to Malta to continue their operations uninterrupted and unhindered from Malta), but also as a legal system that can be picked to regulate a structure without any of the parties necessarily being located in Malta. Furthermore authorisation for mandataries is only required to the extent that such mandataries are acting as such in relation to securities or immovable property. 30 Foreign trustees of Maltese trusts or foreign administrators of foundations governed by Maltese law, who are operating from outside Malta, are not required to be authorised It is also important to note the shift in emphasis from company to body corporate, thus widening the spectrum of entities that can act as trustees, administrators, or mandataries and that may, as a result, be authorised to do so. 27. The MFSA explained that this proposal was being considered primarily in the light of the risks involved in the trustee business and the onerous obligations imposed on trustees in terms of the Act. Furthermore, in the authorisation of trustees, the Authority applies the four eyes requirement which provides that at least two individuals must effectively direct the business of the undertaking. This requirement can only be fulfilled where the trustee is backed by a corporate setup. Consultation Document, Trustees, who are resident or operating in or from Malta, require authorization to the extent that they receive or are entitled to receive remuneration for acting as trustee, do so, on a regular and habitual basis, or hold themselves out as trustees. 29. Foundations and other legal organizations are regulated by the Second Schedule to the Civil Code, ch 16 of the Laws of Malta. 30. Alternatively authorisation can be done away with provided the mandatary engages a so-called qualified person to act as watch dog (as regulated by art 43(9) of the TTA).

8 740 Articles Trusts & Trustees, Vol. 21, No. 7, September 2015 The TTA, as amended, also clarifies that trustees, whether they are authorised or not required to be authorised in terms of the TTA, are anyway bound by the provisions of the TTA itself (with the exception of those provisions dealing specifically with authorisation and registration). 31 This ensures that all trustees administering trusts governed by Maltese law are bound by the duties imposed on them by the TTA (even if the trustees are subject to other legislative or regulatory regimes), 32 thereby enhancing greater confidence in the use of trusts governed by Maltese law. Regulatory requirements New additional requirements have been imposed on trustees (whether individuals or bodies corporate) in order for them to fulfil the conditions required for authorisation to be granted by the MFSA. These requirements also bring Malta s regulatory regime for trustees in line with that of other jurisdictions, thereby further enhancing the reputability of Malta as a trust jurisdiction. They are also aimed at ensuring a more adequate supervision of trustees thereby providing added protection to settlors, beneficiaries and other interested persons dealing with trustees authorised in Malta, while also seeking to take into account the scale and nature of the relevant trustee business. These requirements include a minimum capital requirement of E15, and the requirement to have in place an appropriate professional indemnity insurance cover that is proportionate to the nature and size of the trustee s business operations (that had previously been recommended but never imposed by the MFSA). 34 The MFSA announced its intention to substantiate the details relating to the financial resource requirement for individual trustees (including the possible addition of a requirement for licensed entities or individuals to have liquid assets equivalent to the minimum capital amount) by means of amendments to the Code of Conduct for Trustees. 35 New sub-articles have also been included in the revised TTA to list the requirements that mandataries and administrators of private foundations (whether individuals or corporate entities) need to fulfil to be granted authorisation by the MFSA. These requirements largely mirror those applicable to trustees, with the exception that administrators of foundations seeking authorisation have no obligation to maintain an insurance cover or maintain a minimum capital. In terms of the application process for trustees, other than the new requirements that need to be satisfied by prospective applicants, the MFSA has also introduced a mandatory requirement for applications for authorisation in terms of Article 43 to be accompanied by a programme of operations setting out such matters as the MFSA may prescribe from time to time, 36 as well as a requirement on trustees to commence activities within a period of 12 months from the granting of authorisation. 37 All these requirements (coupled with the arguably modest increase in minimum capital) are aimed at ensuring that prospective applicants are both serious about their intended activities and also dedicate the required attention and energy to think their proposed activities through and to have a proper plan of action. The MFSA explained that it was considering the possibility of expanding on the requirement of submitting a programme of operations in the Code of Conduct for Trustees. 38 Various transitory provisions were introduced with respect to the new regulatory obligations imposed on 31. The new art 1(2) of the TTA. See also Feedback Statement, Feedback Statement, Reduced from the initial proposal by the MFSA of having a minimum share capital of E25,000 (Consultation Document, 9). 34. Given the onerous nature of the office of trustee, the Authority considers that a suitable PII commensurate to the activities provided by the trustee is an important element of the financial resources requirement. (Consultation Document, 9 10), ( the body corporate shall maintain insurance cover at all times which cover shall be proportionate to the nature and size of the trustee s business operations, art 43(4)(i)(e) and 43(4)(ii)(e) of the TTA). 35. Feedback Statement, art 44(1)(d) of the TTA. 37. art 46(d) of the TTA. 38. Feedback Statement, 17.

9 Trusts & Trustees, Vol. 21, No. 7, September 2015 Articles 741 trustees and other fiduciaries who were already authorised. 39 Soon after the first consultation on the proposals that lead to the 2014 amendments, the MFSA issued another consultation document on the proposed introduction of an Annual Compliance Return for authorised trustees and other fiduciaries and a requirement on authorised trustees to submit their audited financial statements for review by the MFSA s Supervisory Unit. 40 The MFSA is contemplating introducing this obligation by means of an amendment to the Code of Conduct for Trustees 41 to supplement the main supervisory tools currently utilised by the MFSA (being on-site compliance visits and regular meetings with management). The MFSA considers that the additional information flow that the Annual Compliance Return will generate will enhance the MFSA s off-site supervision thereby assisting it in developing its risk-based approach to on-site compliance by making the approach more effective and efficient. 42 Rather than linking the submission of up-to-date audited financial statements to the Annual Compliance Return (which could have the effect of the MFSA obtaining financial information that could be 18 months old), the MFSA is proposing that the audited financial statements be submitted within a specified time after the financial year end of the relevant authorised person. 43 Through the same consultation procedure the MFSA also proposed an amendment to the Code of Conduct for Trustees to cater for the interim period and to enable it to collect information from authorised trustees in respect of the period commencing on 1 July 2012 and ending on 30 June 2013 with a deadline of one month from the reporting date (being 30 June 2013) for submission of the Annual Compliance Return (with an electronic version being submitted first, followed by a printed version accompanied by a full set of audited financial statements, which it was being proposed to be submitted by not later than 15 days after). It does not appear, however, that the interim arrangement was put into place and the industry is still awaiting the final outcome of the consultation on the Annual Compliance Return. With regard to content, the MFSA observed that: the intention of the Authority is to better understand the scale and size of the entity concerned, what plans it has for the future, what services the authorised person is offering, details about the operations of the entity and factors which might influence the operations of the authorised person. According to the MFSA also, the: Annual Compliance Return should be seen by authorised persons as a tool to guide them as to what procedures should be in place to adhere to the requirements of the Trusts and Trustees Act and the Code of Conduct for Trustees and Other Fiduciaries. 44 Compliance officer Seeing that, especially following the 2014 amendments (and the other regulatory developments that are in the pipeline), the compliance duties of trustees have increased, the MFSA is also proposing that as part of the licensing process the MFSA will request potential applicants to identify an individual who will be 39. Ranging from six months (for most of the requirements) to two years for the minimum share capital requirement (see Feedback Statement to MFSA Consultation Document on The Proposed Amendments to the Trusts and Trustees Act and Other Related Legislation dated October 2013, ref , 18 and art 58 of the TTA). 40. Consultation Document entitled Consultation on the Proposed Introduction of an Annual Compliance Return for Trustees and other Fiduciaries dated the 12 March http:// accessed on 1 March http:// published in terms of art 52 of the TTA, on 9 February 2005 (but not amended since) accessed on 1 March Consultation Document on the Proposed Introduction of an Annual Compliance Return for Trustees and other Fiduciaries, Consultation Document on the Proposed Introduction of an Annual Compliance Return for Trustees and other Fiduciaries, 4, wherein it requested feedback on whether to impose a four-month deadline from end of financial year, or a six-month deadline. 44. Consultation Document on the Proposed Introduction of an Annual Compliance Return for Trustees and other Fiduciaries, 6. The Consultation document also attached a 28-page proposed form of ACR on which it invited feedback.

10 742 Articles Trusts & Trustees, Vol. 21, No. 7, September 2015 responsible for ensuring the Trustee s compliance with the requirements imposed by the Act, any regulations and rules issued thereunder. 45 The MFSA, mindful also of the fact that trustees carry on a relevant activity as an obliged entity for the purposes of anti-money laundering and counter-terrorist financing legislation, 46 observed that the role of the compliance officer is indeed onerous due to the extent of the responsibility and the possibility of censure by the Authority where problems arise. 47 While trustees are already obliged to appoint a Money Laundering Reporting Officer, the MFSA proposed that the obligation to appoint a compliance officer be also introduced by means of an amendment to the Code of Conduct for Trustees after due consultation with stakeholders. 48 Auditor reporting duties A further amendment has introduced a new duty on auditors of authorised trustees to report to the MFSA facts or decisions of which the auditor becomes aware of in his capacity as auditor of a corporate trustee, and which: i. are likely to lead to a serious qualification 49 or refusal of the auditor s report on the accounts of such trustee; ii. constitute or are likely to constitute a material breach of the legal or regulatory requirements applicable to trustees; or iii. gravely impair the trustee s ability to continue as a going concern. The MFSA intends to further supplement this new duty by including further guidance in the Code of Conduct for Trustees. 50 Powers of the MFSA Extensive new powers have also been given to the MFSA to take certain measures to protect the public interest, again with the intention of ensuring that the integrity and reputation of the Maltese trust industry is safeguarded to the maximum extent possible. 51 Such measures include the power to appoint a person to advise the trustee in the proper conduct of its business, and the power to appoint a person to take charge of the assets of the trustee, or to assume control over the business of the trustee, which powers may be exercised where the MFSA is satisfied that sufficient circumstances exist. 52 Rules and regulations Amendments to the TTA specifically grant the power to the Minister responsible for Finance to issue rules or regulations on the authorisation and regulation of sub-trusts to be used in connection with collective investment schemes and retirement schemes, the use of trusts for persons with disability, the registration, conservation and access of notarial trust deeds referred to in Article 43A of the TTA, and the possibility of notaries acting as qualified persons, among other matters. Together with the Consultation Document, the MFSA also published drafts of two proposed regulations that are, precisely, to regulate the registration, conservation and access of notarial trust deeds referred to in Article 43A of the TTA, and the registration of notaries acting as qualified persons in terms of Article 43 of the TTA. 53 Following certain amendments made pursuant to feedback received from the 45. Consultation Document, Regulated by S.L : 5http:// accessed on 1 March Consultation Document, To date, this amendment has not been made, but in practice the MFSA is requiring the appointment of a compliance officer as a pre-licensing condition of prospective applicants. 49. On the meaning of the term serious clarification the MFSA made reference to IFRSs that prescribe the instances as to what constitutes a serious qualification (Feedback Statement, 16). 50. Consultation Document, 12, para 2.21 and Feedback Statement, art 46B of the TTA. 52. art 46B(1)(b)(c) and (d) of the TTA. 53. The Trusts and Trustees Act (Registrationof Notaries to act as Qualified Persons) Regulations and the Trusts and Trustees Act (Notarial Trust Deeds, Registration, Conservation and Access) Regulations.

11 Trusts & Trustees, Vol. 21, No. 7, September 2015 Articles 743 industry, these regulations have entered into force on the 6 January In the same Consultation Document the MFSA also announced that it was currently evaluating whether to issue regulations to provide for the setting up of collective investment schemes in the form of umbrella unit trusts with one or more sub-trusts and the use of a sub-trust concept in relation to the establishment of retirement schemes in the form of a trust, and it invited submissions from stakeholders on such matters. On the 12th of December 2014, the MFSA issued a Consultation Document on the Use of Trusts for Persons with Disability and the draft proposed regulations relating thereto. While these regulations have not yet entered into force, they form part of a nation-wide initiative aimed at addressing certain patrimonial issues which are faced by those having members of their families who suffer from a disability. 55 Family trusts and private trust companies Definitely one of the most noteworthy amendments to the TTA is the introduction of the Private Trust Company (PTC) within the context of so-called family trusts. The new Article 43B of the TTA caters specifically for family trusts defined as a trust created to hold property settled by the settlor or settlors for the present and future needs of family members and family dependants. Definitely one of the most noteworthy amendments to the TTA is the introduction of the Private Trust Company (PTC) within the context of so-called family trusts This new article provides that a trustee company: i. whose objects and activities are limited to acting as trustee in relation to a specific settlor or settlors and providing administrative services in respect of specific family trusts; ii. which does not hold itself out as trustee to the public; and iii. does not act habitually as a trustee (in any case in relation to more than five settlors at a time) is not required to go through the full authorisation process with the MFSA, but need merely register with the MFSA. This proposal had already been advanced by the MFSA on the 30 January 2012 as part of a proposed Bill to amend various financial services laws. 56 For the purposes of this registration procedure, the MFSA has also been given the power to issue rules regulating trustees which are subject to this procedure, which rules may lay down additional requirements and conditions relating to their activities, the payment of fees or any other matter which the authority may consider appropriate. The clear aim of this new provision is that of incentivising the use of private trust companies in Malta, in the context of family trusts, by simplifying the authorisation procedure. PTCs operate in an extremely useful manner and have become particularly attractive due to a number of advantages that they bring to the administration of an estate, including: i. the possibility of having effective control over the PTC itself (and, as a result, on the administration of the trust) in the form of shareholder control (where this is possible and desirable); Legal notice 14 of 2015, Trusts and Trustees Act (Registration of Notaries to act as Qualified Persons) Regulations 5http:// mt/downloaddocument.aspx?app=lom&itemid=12278&l=14 accessed on 1 March 2015; and Legal notice 15 of 2015, Trusts and Trustees Act (Notarial Trust Deed Registrations, Conservation and Access) Regulations, 5http:// accessed on 1 March http:// accessed on 1 March On 30 January 2012 the MFSA issued for consultation a proposed Bill entitled Various Financial Services Laws (Amendment) Act, 2012, which was primarily aimed at transposing Directive 2010/78/EU as well as other amendments to various financial services laws but also proposed the new art 43B that was eventually enacted by means of Act XI of 2014 in April The consultation procedure was concluded on 29 January http:// Announcements/Consultation/Documents/30_01_2012%20Consultation%20Document%20-%20Bill%20transposing%20Omnibus%20I%20Directive.pdf There may be considerations that make this less desirable depending on the settlor s particular circumstances.

12 744 Articles Trusts & Trustees, Vol. 21, No. 7, September 2015 ii. a simple and efficient way of changing trustees through the removal and substitution of members of the Board of Directors of the PTC rather than the forced removal or resignation of the trustee itself; iii. an increase in settlor or other family involvement through the management of the PTC; iv. enhanced communication with all parties involved, including beneficiaries; and v. a reduction in administration costs; among other benefits. As recently as 25 November 2014 the MFSA has issued for consultation the draft rules that it is proposing to publish to regulate PTC s (or trustees of family trusts as they are referred to), inviting feedback by 23 December Although these rules have not yet been published, they are expected to be so published shortly. 58 Conclusion The above is just an overview of the salient amendments made to Maltese trust law in The Trusts and Trustees (Amendment Act), 2014 also provides for certain other amendments to the Act that are aimed at clarifying and simplifying certain matters (such as the transfer of property between trustees upon a change in trusteeship, particularly in those instances where the outgoing trustee is insolvent, in the course of winding up, or upon the death of a trustee ensuring that during the course of the change in trusteeship, the trust assets are preserved for the benefit of the beneficiaries). The TTA as amended also distinguishes more clearly between the termination of the trust and the lapse of a beneficial interest or the lack of beneficiaries, and clarifies also the relationship between tutors/curators and trustees, in those cases where the beneficiary of the trust is also subject to curatorship or tutorship. In the latter case the TTA as amended specifically provides that for as long as the beneficiary remains under tutorship or curatorship, the trustee is duty bound to seek directions from the Court in the execution of his duties and to comply with any directions given by the Court. The TTA amendments have bolstered Malta s trusts legislative framework and serve as a further indication of Malta s commitment as a jurisdiction to being at the forefront of the trusts and other fiduciary services industry. While enhancing the use of trusts governed by Maltese law, the legislator has, at the same time ensured that the integrity of Malta s financial services sector is maintained. The area remains a dynamic one, with the industry and its regulator working incessantly at seeking to update this (and other related and unrelated) areas of law, and besides the imminent developments mentioned in this article there are also other developments that are expected in the near future, not least the anticipated revision to the Code of Conduct for Trustees and the updating of the Maltese law regulating foundations. Dr Anthony Cremona is a Partner at GANADO Advocates and leads the firm s Trusts and Foundations team, advising Malta-based domestic and international trustee companies, administrators and other fiduciaries. Offering a full service, Anthony not only counsels on substantive trusts and foundations law, but actively engages in structuring Maltese trusts and foundations for a diversified client base. Anthony is an elected committee member of the Malta branch of STEP. acremona@ganadoadvocates.com Liana Micallef is an Associate within the Trusts and Foundations team at GANADO Advocates, with a particular focus on the setting up of trusts, foundations and other organizations, and related matters. She also regularly assists in matters relating to the prevention of money laundering, taxation, estate planning, the formation of companies, and general commercial and corporate law matters. lmicallef@ganadoadvocates.com 58. Consultation Document, Proposed Rules for Trustees of Family Trusts (MFSA Ref 09/2014) dated 25 November 2014, nouncement.aspx?id¼6598 accessed on 1 March 2015.