22 Nov 2017
Hong Kong Trust Industry Spotlight: Enhancing its competitive edge
The future of the Hong Kong trust industry looks both promising and challenging as the competition continues to intensify regionally and globally. The main objective of this report is to outline the latest industry trends in Hong Kong and provide insights on how the HKSAR can enhance its competitive edge. This includes suggestions to expand the size of the industry and the range of services that will reinforce Hong Kong’s position as a premier trust jurisdiction in the long term.
In this report, we have identified a number of key challenges and areas that the HKSAR should look at addressing:
1) The compliance conundrum
Trust companies are spending an increasing amount of time and effort on compliance and regulatory matters, which has led to a surge in operating costs. The higher cost either undermines profitability or is passed on to clients, neither of which is positive for the industry. Some companies are turning to technology-based solutions, while others are calling for the government to develop simplified policies for global compliance.
2) Improving the talent pool
A common theme expressed by interviewees is the shortage of talent across many aspects of the industry such as trust administration, legal and compliance, and client management. A lack of formal training and qualifications for trust professionals was widely cited as an issue.
However, the HKTA is working with the Hong Kong Securities and Investment Institute (HKSI) on providing a solution.
3) Streamlining of the regulatory framework
The diverse nature of the Hong Kong trust industry means the regulatory regime is highly fragmented. While the areas under governance are defined, there are overlaps in the reporting, licencing and approval processes. The regulation of trust companies was the industry’s top pick as the most effective method to drive further development, while some respondents have called for a single regulator model, which could streamline disclosures and boost efficiencies.
4) Clarity on tax
The application of current tax legislation to trusts and, in particular, trusts carrying on a trade or business in Hong Kong, is considered somewhat opaque by many practitioners. Greater clarity and certainty is therefore regarded as desirable and can enhance Hong Kong’s competitiveness as a trust jurisdiction. Hong Kong should look at establishing a comprehensive tax code for the taxation of trusts, similar to other comparable jurisdictions like Singapore and the United Kingdom.
There are also more sector-specific improvements that can be made such as further enhancements to the MPF system (including developing the eMPF, availability of more retirement income stream products and increasing contribution rates over time), introducing purpose trust legislation and establishing a charities commission.
In order to build on Hong Kong’s strong foundations and leverage its advantages as a location for financial services, the government, regulators and the industry will need to increase their collaboration.
Greater coordination among stakeholders is required to position Hong Kong as the destination of choice for trust services amidst stiff competition from Singapore as well as traditional jurisdictions such as BVI, Cayman Islands and Channel Islands.
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