Compliance, regulations and increasing trust assets are among key priorities for Hong Kong’s trust industry, according to a joint inaugural report, titled Hong Kong Trust Industry - A Cross-Sector Perspective, by KPMG and the Hong Kong Trustees’ Association (HKTA).
The trust industry covers a wide spectrum of financial services including MPF schemes, exchange traded funds (ETFs) and other types of retail funds, private trusts for wealth and estate planning, and charitable trusts.
“The objective of the report is to give an overview of Hong Kong’s diverse and dynamic trust market, supported by an independent KPMG survey of industry players, and highlight the key issues, opportunities and challenges for the industry,” says Ms Ka Shi Lau, BBS, Chairwoman of HKTA.
- More than half (55 percent) of the survey respondents said increasing trust assets was their first priority in the next 12 to 18 months, followed by compliance and regulations (42 percent).
- In terms of regulatory challenges, the U.S. tax law, the Foreign Account Tax Compliance Act (FATCA) topped the list with 28 percent of the respondents indicating this was a concern; anti-money laundering was rated second (22 percent), followed by MPFA regulations (16 percent) and the Hong Kong Trustee Ordinance (12 percent).
- Talent shortage was indicated as another challenge facing the industry. Respondents said a lack of critical business knowledge was a major staffing issue (28 percent), while salary and compensation pressures, high turnover of staff and lack of succession planning were viewed as additional challenges.
Ms Vivian Chui, Partner, KPMG China, says: “The trust industry in Hong Kong faces a number of challenges, including ongoing competition from Singapore, and other offshore jurisdictions. However, there is optimism about the future of the sector with the expectations that Hong Kong will see growth as an investment management centre; the trust industry will therefore play a key part.”
While respondents confirmed they are likely to be affected by local and global regulations, they also acknowledged the importance of regulations in fostering confidence in the industry, the report notes. Some indicated that enhancing the local regulatory environment is necessary for Hong Kong in order to retain its position as a leading trust jurisdiction.
Around one-third of the respondents indicated they have used Hong Kong as a trust jurisdiction, while others have opted for more traditional offshore jurisdictions, such as the British Virgin Islands (13 percent), Cayman Islands (14 percent), Jersey (10 percent), and Bermuda (4 percent). The survey notes that the key factors determining the choice of location include customer preference, tax effectiveness and legacy reasons.
With the aims to facilitate modern trust administration and attract more trust business to Hong Kong, the government has proposed amendments to the Hong Kong Trustee Ordinance (HKTO) which was just passed by the Legislative Council today. Half of the survey respondents said they are optimistic these amendments will encourage future growth in the local trust industry.
Ms Chui concludes: “In the medium and long term, the operating environment of the industry is characterized by emerging opportunities, intensifying competition with local and global players, and increasing expectations from clients and regulators. At the same time, industry players are anticipating the benefits from the forthcoming policy initiatives, including HKTO reform, and mutual recognition of funds by mainland China and Hong Kong.”
Ms Lau adds: “Hong Kong presents itself as a world city and a major financial services centre, yet there has been limited focus placed in highlighting its role as a trust and fund services centre. It is therefore critical that the Hong Kong government pursues a long-term vision and policy on developing and promoting the trust industry and creating an enabling environment to foster business growth. The HKTO Amendment Bill legislation passed today will firmly place Hong Kong as a modern trust jurisdiction and further cement its position as a truly world-class financial services centre in all aspects.”
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