Duty Calls

Our industry is coming under increased scrutiny from clients, the press, governments and the wider public. Whether concerning the activities of directors at Mossack Fonseca, public registers in British Overseas Territories or the long-running case of Crociani v Crociani, the responsibilities and duties of trust company directors (TCDs) are rarely out of the spotlight.

A TCD will frequently be a member of the main board of their relevant trust company business (TCB), and will focus on the business' commercial needs while driving it forward and exercising prudent control. The TCD also has fiduciary duties towards clients, as the director of corporate trustees and individual client companies. Coupled with the TCD's ongoing regulatory obligations, there are arguably fewer hot potatoes to handle than with an appointment to the board of a TCB.

This should not intimidate TCDs, who should embrace the unique opportunity that the role allows - to lead a business for the mutual benefit of both stakeholders and clients, and to have the job satisfaction of meeting rich and diverse challenges on a daily basis.

To operate effectively and ensure that a TCD's duties are being complied with, it is necessary to divide the duties of a trust director into four categories:

■ Company-law duties. Whether under the Companies Act 2006 or equivalent legislation, the fundamental duties imposed by law are similar. They include the obligation to act in good faith; exercise reasonable care, skill and diligence; and avoid conflicts of interest where the personal interests of the TCD ( or their duties to other persons, such as the trust business or other clients) conflict with the interests of the company. Having multiple directorships or being a shareholder or employee of the TCB may give rise to potential conflicts, which must be avoided, pre-approved and/or properly regulated as appropriate. Company law imposes many additional responsibilities, some of which are personal in nature, and there are civil and (in the most serious cases) criminal liabilities for breaches.

■ Trust-law duties. In practice, the decisions made by corporate trustees will be made by individual directors. This includes compliance with trust law and the governing document of each trust under management to ensure that decisions are made in the best interests of the beneficiaries, and to properly account for trust assets. There is also, subject to the terms of the trust, the need to supervise trust assets and trust-owned companies per Bartlettv Barclays Bank. Personal directors can be potentially liable for the decisions of the trustee if they are negligent or made in breach of trust. Successful attempts to pierce the corporate veil of the trustee company or to prove a breach are rare, but liability for criminal or civil penalties can be established if a personal director acts dishonestly or in breach of a duty to the corporate trustee.

■ Compliance and regulatory obligations. The obligations under regulatory and equivalent anti-money laundering legislation, and to comply with the relevant codes of practice (Codes) issued by regulators, are extensive. To maintain a jurisdiction's position as an international finance centre and to uphold regulatory standards, regulators are expected, and are committed to, strict enforcement of these rules, with severe consequences for non-adherence.

■ Global transparency initiatives. Local and international legislation and agreements have increased the costs and responsibilities of trustees beyond what most TCDs would have anticipated when they entered the profession. Despite the onerous nature of these duties, it remains possible for them to be properly discharged, and to meet clients' /regulators' expectations and deliver long-term growth to the TCB stakeholders. A properly managed TCB should have a well-resourced compliance and legal team to advise TCDs and ensure their ongoing adherence to legal and regulatory standards. A TCB should have detailed policies and procedures in place to meet the standards set out in the Codes and to ensure that TCDs deal with potential conflicts of interest, comply with the relevant governing documents, and ensure that the fraud and abuse of clients by a rogue connected person is not possible.

When a TCD focuses on the core principles of company law; adheres to the standards set by its regulator; and acts with integrity and in good faith to promote the mutual success of client entities and the wider business, taking advice when appropriate, they should be able to meet the regulatory and legal standards set, and run a prudent and commercially effective business.


Published in STEP Journal, August 2018

Simon Hart
Legal Director | Board Member
T: + 44 (0) 1534 512 516
Client Services Director | Jersey Board Member
T: + 44 (0) 1534 512 588

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