On the 27th November 2024, the Malta Financial Services Authority (the "MFSA") published the new Trustees of Family Trusts Rulebook ("Rulebook"), replacing the first set of rules in the context of family trusts that were published way in back in 2016.
The Rulebook applies to trustees registered ("Registered Trustees") in terms of Article 43B of the Trusts and Trustees Act (CAP 331 Laws of Malta) (the "Act"). It is important to note that the Rulebook is binding and must be read in conjunction with the provisions of the Act.
As a general observation, the structure of the Rulebook has been amended to address different aspects (ranging from high-level principles, to a comprehensive guide on the registration process, to trustees' ongoing obligations etc) in a more streamlined, comprehensive manner.
Besides the cosmetic changes made to the Rulebook, the new Rulebook brings about a number of important regulatory changes. The main changes include:
- firstly, the broadening of the definition of
'family dependants/ members' – as one of the
key changes – to include (besides individuals related to the
settlor in the direct line up to any degree):
- persons related to the settlor's ascendants or descendants in the direct line by affinity;
- individuals related to the settlor in the collateral line up to any degree (therefore no longer limited to the fifth degree in the collateral line);
- an individual who is in a stable and committed relationship with the settlor and who lives in the same household with the settlor;
- as well as an individual with whom the settlor has descendants, by consanguinity, adoption or affinity.
This amendment clearly allows for a wider range of individuals to be considered family members, thereby expanding the potential pool of beneficiaries under a family trust.
- a second key change being a further amendment to the definition of 'family dependant/s members' has been made to also include 'family clients' (which term means any former family member, key employee, former key employee, non-profit or charitable organisation funded exclusively by one or more family members dependants or clients) – in cases where the Registered Trustee is set up inter alia to invest assets of the family trust in a Notified Professional Investor Fund (NPIF) established under the Investment Services Act (List of Notified CISs) Regulations where the NPIF is managed by an exempt manager (where assets are in excess of EUR50,000,000 (or equivalent)), thereby allowing additional individuals to benefit under a family trust. Indeed, in parallel with this amendment, an amendment has also been made to the Investment Services Rules for Notified Professional Investor Funds and Related Due Diligence Service Providers which sees to the introduction of an exemption under the Investment Services (Exemption) Act that exempts a NPIF managed by a fund manager, established in Malta, from the requirement of requiring a licence, to the extent that the NPIF it manages is a family office vehicle (as the term is defined) which invests the private wealth of investors without raising external capital, subject to certain reporting requirements (besides the requirement of having a subject person in terms of the Prevention of Money Laundering and Funding of Terrorism Regulations form part of the structure at all times),. These two regulatory updates effectively see to the introduction of a regulatory framework for Single Family Offices in Malta, giving added opportunities to high-net worth individuals and their families on how to structure their wealth;
- a third important amendment, being the clarification of the term 'settlor' in the context of the definition of 'family dependants/members', to acknowledge that reference to 'settlor' means reference to any one of the settlors of a trust in the event there is more than one, or to any person who provides trust property or makes a disposition to a family trust in their capacity as settlor of a trust. This, effectively, gives family trusts the benefit of being used to address different family arrangements;
- another significant change being the removal of the requirement of a Money Laundering Reporting Officer (MLRO) – therefore aligning the MFSA's position with that of the Financial Intelligence Analysis Unit ("FIAU") in that Registered Trustees are not to be considered as subject persons carrying out relevant activity for the purposes of Prevention of Money Laundering and Funding of Terrorism Regulations S.L. 373.01;
- an equally important amendment being the relaxation of the rule requiring trustees of family trusts to obtain an insurance cover where the Registered Trustee is unable to obtain cover, by requiring that Registered Trustees undertake a thorough assessment of the risks of the Trustees and make the necessary, appropriate reserves;
- other important changes, which are intended to enhance
transparency and accountability in the management of family trusts,
including:
- a chapter dedicated to setting out a comprehensive overview of the registration process including also the MFSA's expectations in this regard. In so far as the registration process is concerned an important amendment is the fitness and properness assessment, originally aimed at proposed Directors of the Registered Trustee, that is now also to apply to other persons involved in the Registered Trustee's decision making process, strategy and implementation;
- a chapter dedicated to ongoing obligations for trustees, which now include record keeping, the preparation of audited financial statements, and adherence to RBO (Register of Beneficial Ownership) regulations; and
- a chapter dedicated to addressing directors' duties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
