The guidelines, entitled Guidelines on Allowing a Person to be Appointed or to Act as a Trustee under Subsection 99(1) of the Securities Commission Act 1993, are introduced to facilitate applications by persons intending to be appointed or act as trustees of unit trust schemes, in accordance with subsection 99(1) of the Securities Commission Act 1993 (SCA). Its overriding aim is to provide checks and balances that would safeguard the interest of unit holders.

Subsection 99(1) SCA sets out the categories of persons considered to be in a conflict of interest situation, and hence not eligible to be appointed or act as a trustee of unit trust schemes unless the approval of the SC has been obtained.

Specifically, subsection 99(1) SCA states that a person is not eligible to be appointed or to act as a trustee for unit holders without the approval of the SC if the person is a shareholder who beneficially holds shares in the management company managing the unit trust scheme, is beneficially entitled to moneys owed by the management company, or is a related corporation of the management company or any of the categories of persons referred to above.

The guidelines, in facilitating the application of subsection 99(1) SCA, contains provisions that include the requirement that at least one-third of the board of directors of the trustee seeking approval under the guidelines comprise independent members, and there being no common directors sitting on both the boards of directors of the trustee and the management company.

The guidelines also require a legal and structural separation between the trustee and the persons set out in subsection 99(1). Independence of financial and non-financial resources between the trustee seeking approval and the persons referred to in subsection 99(1) is a further requirement of the guidelines.

Under the guidelines, the potential trustee for the unit trust scheme and the management company must also provide an undertaking as to independence in the dealings of the scheme under trusteeship.

The SC will only allow a person to act as trustee for unit holders under subsection 99(1) provided that the requirements of the guidelines are satisfied. One of the conditions of approval by the SC will be that the requirements of the guidelines continue to be met during the tenure of appointment of the trustee in respect of a particular unit trust scheme. Pertinent disclosures and declarations will also need to be made by the trustee to unit holders while it acts as a trustee of the unit trust scheme.