18.5Finally, general consumer protection regulation is also relevant. The Consumer Guarantees Act 1993 applies to all trade and professional services of a personal or consumer 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 makes known to the service 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.
18.6The 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.
18.7There is currently a regulatory “gap” in occupational regulation. Everyone who is in the business of providing trust formation and management services or advice to consumers, rather than to other commercial clients or businesses, is covered by consumer protection legislation, but that consumer legislation does not set occupational standards and obligations in the way occupational regulation does. Not all advisers or service providers are required to be registered or required to comply with standards of professional competence in the way that lawyers and financial advisers are. Also, consumer protection does not apply in a commercial context.
18.10A few submitters who favoured regulation commented on the Preferred Approach Paper. The point was made that without some form of registration it would continue to be difficult to gauge whether unregulated service providers are a problem. Given the large numbers of trusts in New Zealand containing significant wealth, these submitters said that it is important that trusts are well administered. They said that there is some anecdotal evidence to suggest that some service providers are not reaching an acceptable standard.
18.11We carefully weighed these points when reaching our final view. We recognise that there are some difficulties in forming an accurate picture of the sector. However, the information that is available does not indicate any significant problems. We found no evidence of the type of systemic problems that would justify the costs and intrusion involved in establishing a register of service providers and resourcing a regulator to establish and monitor standards.
18.12The majority of those providing advisory and management services in relation to trusts are already regulated. The financial advisers’ regime, current professional regulation and the anti-money laundering legislation together cover most of those operating in this market. We think that the gap in occupational regulation is relatively small and it should, at least at this stage, be left to the market and general consumer protection legislation to moderate the standard of services. In our view it would be appropriate for the Ministry of Business, Innovation and Employment to continue to monitor the situation for developments.
18.13A few submitters, most of whom did not favour regulation for domestic service providers, considered that there may be a separate case for regulating organisations acting as professional trustees or otherwise providing trust related services to foreign or offshore trusts in New Zealand. They argued that this would be desirable to help protect and support New Zealand’s reputation as a global centre for trust administration. The New Zealand Branch of the Society of Trust and Estate Practitioners were concerned that unscrupulous service providers could harm New Zealand’s international reputation. The New Zealand Branch of the Society of Trust and Estate Practitioners and a few other submitters supported a standalone, light-handed regulatory model for trust and company service providers servicing the offshore market. They considered that this would help develop and promote New Zealand as a jurisdiction of choice. It was noted by one submitter that other jurisdictions regulate their international trust administration industries because internationally there is a competitive advantage for trust companies to hold themselves out as being regulated. Regulation can attract foreign trusts and promotes confidence in the jurisdiction.
18.14We acknowledge the development in New Zealand of the offshore market and the accompanying international trust administration industry. We have not formed any views about whether New Zealand might wish to consider regulating to promote the development of an offshore market. Nor have we attempted to address any issues relating solely to New Zealand developing as an offshore jurisdiction for foreign trusts in this Report.
18.15Our focus throughout our review has been on New Zealand’s domestic or onshore jurisdiction and on addressing the central matters of trust law in that context. In ensuring that core matters of trust law are appropriate for our onshore jurisdiction, we will also protect and support New Zealand’s international reputation in trust law. This in turn promotes confidence in New Zealand’s trust law jurisdiction, which may have flow-on benefits for the offshore or foreign trust industry in New Zealand.
18.16Whether there should be a specific regulatory scheme to cover those individuals and organisations servicing the foreign or offshore trust industry in New Zealand is not an issue we have considered as part of this review. That question is part of a broader question concerning whether New Zealand wishes to develop specific regulatory infrastructure to promote and protect the foreign trust industry. Such economic issues fall beyond the scope of this review and will need to be considered elsewhere.