It is important, first of all, to define a fiduciary. Despite voluminous literature, there is no ready answer and the fiduciary relationship remains ‘a concept in search of a principle’. In general terms, it is possible to divide fiduciaries into two categories, status-based fiduciaries and fact-based fiduciaries.
The status-based category includes a core of well established relationships such as trustee-beneficiary, guardian-ward, director-company, principal- agent, solicitor-client, employer-employee, and partner-partner. They are relationships which are regarded by equity as fiduciary per se. It is debatable as to what is the common denominator behind these relationships but it is not a matter of concern here. Read the rest of this entry »
In Parkes Management Ltd. v. Perpetual Trustee Co. Ltd. , the manager of a unit trust was aggrieved by the trustee’s issue of a certificate that it was in the interest of the unitholders that the manager should be dismissed. On the question of the manager’s locus standi, Hope JA said:
It is submitted for the Trustee that it is only a beneficiary who can challenge the exercise by a trustee of a power . . . There would appear to be three answers to this submission. Firstly, that the Manager was a beneficiary; secondly, that the provisions of cl. 20(1) of the Deed entitled the Manager to ensure that the Trustee exercised any power under the Deed bona fide without indirect motive, and with a fair consideration of the issues; and thirdly that being a party to the Deed the Manager was entitled to challenge the certificate . . . Read the rest of this entry »
The trust has achieved a separation of the legal and equitable ownership by imposing on the legal owner, the trustee, an obligation to hold the trust properties for the benefit of the beneficiaries. That obligation is a characteristic feature of the trust. The unit trust involves a split of that trust obligation into the custody of the trust corpus and the management of that corpus. If the trust is a manipulation of the facets of ownership’ resulting in a two-party relationship, the unit trust is a furtherance of that manipulation which results in a tripartite relationship. Read the rest of this entry »
- The trustee must not follow a direction of the manager if such direction is in breach of the express provisions of the unit trust. This is so irrespective of whether the power in question is beneficial or fiduciary. If it were otherwise, the duty of supervision would be completely hollow.
In respect of every investment proposed by the manager, this means that the trustee has to check each proposal against the letter of the unit trust deed. Read the rest of this entry »
Section 84 of the Financial Services Act 1984 provides:
Any provision of the trust deed of an authorised unit trust scheme shall be void in so far as it would have the effect of exempting the manager or trustee from liability for any failure to exercise due care and diligence in the discharge of his functions in respect of the scheme.
This section only applies to authorized unit trusts. Exemption clauses in non-authorized unit trusts are not affected. Read the rest of this entry »
It is established that the powers of the manager are not delegated powers derived from the trustee; the manager is a primary source of authority, having been responsible for the set up of the unit trust. However, despite this stated position, it is submitted that the trustee has reserve powers incidental to its status as a trustee by reason of its legal ownership of the properties and equity’s imposition of duties on such an owner. The position appears to be that if the manager cannot find authority for a particular act in the express or implied powers of the unit trust deed, the manager cannot do the act. The unit trust deed is the source of the manager’s authority. Read the rest of this entry »
Shortly after Charles was decided by the High Court of Australia, another fixed investment trust was the subject of taxation proceedings. This time, it was before the Supreme Court of Canada in MNR v. TransCanada Investment Corporation Ltd. The trust was a typical fixed investment trust. Under the trust deed, an administrator (i.e. the manager) was to purchase a fixed number of predetermined shares of common stock of companies to constitute a trust unit. Upon all the shares of underlying companies of a unit being vested in the trustee, the trustee would issue shares of a trust unit. Each share of a trust unit represented an undivided equal interest in the unit. Read the rest of this entry »
- Use of a broker affiliated with a fund A fund management company may have an affiliated broker-dealer and may use that broker-dealer to trade under certain circumstances. For example, Merrill Lynch may act as a broker on behalf of a fundfund to the NYSE for executionbroker in the trading crowd or an order held by the NYSE specialist. Rules adopted by the SEC under the 1940 Act generally permit a broker who is affiliated with a fund’s adviser to effect trades for the fund as an agent, so long as the commission charged is no more that the “usual and customary” commission prevailing in the market. The SEC’s rules require a fund’s board of directors to adopt procedures that are designed to monitor compliance in this regard and to make determinations on at least a quarterly basis that all trades carried out by a fund’s affiliated broker meet the “usual and customary” commission standard.
Although an affiliated broker may act as agent for the fund (and receive a brokerage commission for executing the fund’s trades), the 1940 Act broadly prohibits a fund’s adviser and affiliates of an adviser from acting as a dealer in relation to the fund—that is, from selling any security or other property to (or purchasing any security or property from) the fund. This core provision of the regulatory scheme is intended to preclude conflicts of interest that could arise if a fund’s affiliated broker “dumps” unwanted securities from its inventory into the portfolio of the fund. Read the rest of this entry »
BACKGROUND AND PURPOSE
The primary purpose of regulations is to protect investors, and the roots of governmental regulation of mutual funds in the longer-established markets are often associated with major scandals and market crashes.
In the USA, the stock market crash of 1929 prompted an extensive investigation by Congress into the securities industry. It revealed that overselling, or ‘ramming’ of shares, particularly radio company shares, had created unrealistic expectations and false, overvalued markets. The investigation resulted finally in the Investment Company Act 1940, which established the Securities and Exchange Commission (SEC) - this Act remains the cornerstone of US mutual fund regulation - and the Investment Advisers Act 1940. Along with two Acts passed into Federal law in the 1930s - the Securities Act 1933 and the Securities Exchange Act 2934 - these four Acts provide the bulk of federal powers over the activities of US investment companies. In fact, the only addition to US legislation affecting all companies since 1940 is the Sarbanes-Oxley Act of 2002 and that has only an indirect bearing on mutual funds themselves, being more concerned with accounting, auditing and disclosure practices of trading companies, following the Enron and Worldcom scandals. Read the rest of this entry »
Ireland - development of a mutual fund industry dates effectively from the establishment of the IFSC - the International Financial Services Centre -under legislation passed in the late 1980s as one of a number of measures to stimulate growth and employment in an otherwise poorly performing economy and capitalising on the EU’s UCITS Directive. The significant majority of funds established in Ireland are open-ended investment companies, usually listed on the Dublin Stock Exchange, designed for marketing throughout Europe. Under the Irish UCITS Regulations 1989, the Central Bank of Ireland was made responsible for authorising and supervising investment and insurance intermediaries but the Central Bank and Financial Services Authority of Ireland Act 2003 established on 1 May 2003 a single regulatory framework for the financial services industry and created the Irish Financial Services Regulatory Authority (IFSRA), with its own board and chief executive reporting directly to the Minister for Finance. Other relevant legislation includes the Unit Trust Act 1990, the Companies Acts 1963 to 1999, the Investment Limited Partnership Act 1994 and the Investment Intermediaries Act 1995.
Korea- like Japan, Korea in the late 1960s needed to mobilise domestic capital to facilitate long-term, stable financing of large-scale industrial and infrastructure projects. The securities investment industry naturally attracted special attention and the Securities Investment Trust Business Act (SITBA) was passed in 1969, to allow the setting up of contractual-type investment trusts, and the first of these, Korea Investment Corporation, was launched that year. Under SITBA, which was implemented by related Presidential Decrees and Enforcement Ordinances, the Ministry of Finance and Economy had, by 1989, authorised three investment trust companies to undertake operations nationwide and five in provincial areas to distribute investment trusts in Seoul and in their respective specified regional areas. Read the rest of this entry »
South Africa - the Collective Investment Schemes Control Act, which updated and replaced previously existing unit trust legislation, 
was enacted in 2002 and in place at the start of 2003. This Act moved legislation more in line with international best practice and was the subject of negotiation between the trade association and regulatory authorities for some years. The Financial Advisory and Intermediary Services Act (FATS), which became law towards the end of 2002, had as its purpose the regulation of financial planners and advisers, as well as product suppliers, in the giving of advice and the conduct of their business in all areas where other industry legislation did not make specific provision. During its passage as a Bill, it had an impact in terms of how and what advisers were selling, in anticipation of the law. The Financial Intelligence Centre Act, aimed at combating rnoney-laundering activities, brought South Africa into line with international best practice and the subordinate legislation enabling effective practical implementation was in place by year-end 2002. In spite of its name, the Securities Services Act 2004 does not apply to collective investment schemes, nor to activities regulated under FATS, and the Financial Markets Advisory Board, established by the Financial Markets Control Act 1989, continues.
