15.15General consumer protection regulation is also relevant. The Consumer Guarantees Act 1993 applies to all trade and professional services of a personal or domestic nature. This Act guarantees that such services will be carried out with reasonable skill and care and that they will be fit for any particular purpose that the consumer made known to the provider. It also guarantees that services will be completed within a reasonable time and at a reasonable cost. Where a service provider fails to meet these standards consumers are able to cancel services, refuse payment (or part payment) or claim compensation. The Fair Trading Act 1986 prohibits traders from making false or misleading representations about their services. Remedies are also available under that Act where service providers breach that obligation.
15.16There is currently a small regulatory “gap”. It is, however, confined to occupational regulation. Although trust service providers are covered by consumer protection legislation and anti-money laundering legislation they are not under any occupational obligations. They are not required to be registered or required to comply with standards of professional competence in the way lawyers and financial advisers are.
15.18Unregulated advisers provide their services as an alternative and in competition with trustee corporations and regulated professional advisers. Given they are claiming similar specialist skills and expertise, we have considered whether they should be similarly regulated to ensure their services meet a certain standard to better protect the consumers of such services.
15.20The following options for reform were considered:
15.22If option 2 or 3 is favoured, then one approach to consider is to extend the coverage of an existing occupational regime, such as the financial advisers’ regime, which could be extended to cover all individuals and companies providing trustee services.
15.24A handful of submitters commented on this topic. Two-thirds favoured a light-handed approach to regulation, with an obligation for those providing trust-related services to be registered and to retain basic trust documents and information. Others including the Ministry of Economic Development and the NZLS were not in favour of an additional layer of regulation.
15.25There are a number of points in favour of regulation. The practices of unregistered and unregulated service providers, and the quality of services they are providing, are difficult to gauge while services are not monitored. Light-handed regulation that required service providers to register would give a clearer picture. Some submitters expressed concerns that some of those operating in the market are probably not meeting appropriate quality standards, and that the numbers providing unregulated services would likely continue to grow. Regulation would either force these service providers to improve or exit the market.
15.26There is also some interest in developing New Zealand’s foreign trust jurisdiction. A couple of submitters suggested that given the increased interest in New Zealand providing foreign trust services, regulation was appropriate to help develop and promote New Zealand as a jurisdiction of choice. They thought that regulation would force those who did not meet the quality standards to either improve or leave the market and that it would improve public confidence and ensure that providers had an appropriate level of financial stability. Regulation of service providers is a significant feature of off-shore trust jurisdictions so could assist with such development.
15.27Extending regulation to paid or professional trustees might improve the quality of services provided by some trustees. Regulation may also address existing concerns about the poor administration of some trusts.
15.28Submitters provided views about the type of regulation that could be introduced. Some favoured a regime that applied to all companies or individuals who charge for advice about trust establishment or administration, or who prepared documents for these purposes, or anyone who is paid to act as a trustee. Some considered that it should not cover all paid trustees but only organisations and individuals that are in the business of providing professional trustee services to multiple clients. The suggestion was made that statutory trustee corporations, persons who act as trustees gratuitously and persons who act as trustees for a limited number of trusts (for example up to five) should be exempt.
15.29The Financial Markets Authority (FMA) and the supervisory bodies under the Anti-Money Laundering and Countering Financing of Terrorism Act, which will be the Department of Internal Affairs for trustee service providers and the FMA for trustee companies, were suggested as possible regulatory authorities.
15.30However, in our view the arguments against regulation are more compelling. Although some submitters favoured light-handed regulation, no-one has identified any significant regulatory gap or any serious problem with the quality of services available. As the Ministry of Economic Development’s submission notes, settlors and trustees are able to obtain a full range of trust services from regulated professional service providers. The Ministry saw no obvious need to protect consumers who choose to obtain services from unregulated persons. It seems unnecessary to regulate further, particularly when regulation would increase compliance costs and the administrative burden already imposed on trusts. There would be costs involved in establishing a register and resourcing a regulator. In our view the size of the regulatory gap here simply does not justify the additional cost.
15.31After weighing the arguments, we consider that additional regulation is unnecessary because the occupational regulatory gap is very small. The financial advisers’ regime, current professional regulation and the anti-money laundering legislation together cover most of those providing services in this market. We propose that it should be left to the market and to general consumer protection legislation to moderate the standard of services that fall outside these occupational regimes.
15.32However, it would be appropriate for the Ministry of Business, Innovation and Employment to continue to monitor the situation for developments. It will take time before the impact of recent amendments to the financial advisers’ regime, and the Anti-Money Laundering and Countering Financing of Terrorism Act can properly be assessed. These changes are likely to address many of the problems of unqualified advisers working in the trust sector.
15.33Finally, we consider that it is unnecessary to impose additional regulatory requirement on paid trustees. We have proposed in chapter 3 that new trusts legislation strengthen trustee duties. Trustees are under duties which are enforceable by beneficiaries through the courts. We agree with the NZLS that these remedies against trustees should be adequate to address situations where trustees fail to meet appropriate standards.