3.7 Regulation and Duties of the Scheme Trustee

Who Can Be a Trustee

When registering a Trustee the SC looks at structure (governance, accountability, segregation of duties), competence (controls and processes that protect investors) and resource capabilities (qualified and experienced staff).

Related-party trustees

The SC allows related-party Trustees in some cases, but they must:

1. appoint an external auditor registered with the Audit Oversight Board to independently assess their internal controls, processes and systems once every two years;
2. submit the scope of that assessment to the SC for approval before it starts; and
3. submit the assessment report to the SC one month before the anniversary date.

General Duties

The Registration Guidelines require a Trustee to:

• act honestly and in investors' best interests;
• safeguard investors' rights and interests;
• take reasonable steps to ensure fair treatment of investors;
• not gain an advantage for itself or others, nor cause detriment to investors;
• comply with duties in the deed that are consistent with securities laws; and
• carry out any other duties the SC specifies.

The Trustee's Oversight in Practice

Custody of assets

• All scheme assets are held in the Trustee's name. The Scheme Provider cannot sell or transfer them without the Trustee's express permission.
• Assets are kept separate from the Trustee's own assets and from other schemes.
• A sub-custodian may be appointed with SC approval, but the Trustee remains responsible for it.
• The Trustee ensures the scheme receives its income and entitlements, that net income is properly distributed, and that the fees paid to the Scheme Provider are reasonable and match the deed and prospectus.

Investment policies and transactions

The Trustee must know the scheme's investment policies, check they match the prospectus or disclosure document, and be satisfied they are sound. It then acquires and disposes of investments on the Scheme Provider's instructions; the provider should submit daily investment reports. Investments must never further the interests of the Scheme Provider or related parties at investors' expense.

Dealing in units

The Trustee creates and cancels units at the Scheme Provider's request under the UTF and PRS Guidelines:

• units are created only for cash, paid to the Trustee within 7 business days, at a price set by the deed and Guidelines;
• the Trustee checks that valuation and unit pricing follow the deed; and
• it may refuse to create or cancel units (or the number requested) if that would breach the deed, securities laws or guidelines, or (for cancellations) would not be in investors' best interests.

Accounts and audit

• The Trustee keeps, and ensures the Scheme Provider keeps, proper accounting records.
• Scheme accounts are audited every financial year by an approved auditor appointed by the Trustee. If the SC considers the auditor unsuitable or none has been appointed, it can direct the Trustee to replace or appoint one.
• The Trustee may remove the auditor and appoint another, and unit holders may, by ordinary resolution, ask the Trustee to replace the auditor.

Reports to Investors

Scheme Providers must publish at least two reports each financial year: a semi-annual and an annual report. Each must be sent out within two months of the end of the period and include the financial statements (with the auditor's report and Shariah adviser's report where applicable). Annual financial statements must be audited by an approved, independent auditor appointed by the Trustee.

The annual report includes the Trustee's Report, stating whether in its opinion:

1. the Scheme Provider managed the fund within the limits on its investment powers in the deed, the Guidelines and other laws;
2. valuation and pricing followed the deed and regulatory requirements; and
3. creation and cancellation of units followed the deed and regulatory requirements.

If not, the Trustee must disclose the shortcomings that could affect investors' decisions and the steps taken to fix them and prevent recurrence.

Reporting to the SC

The Trustee must report to the SC if it believes the Scheme Provider has not acted in investors' interests or has breached the deed, the guidelines or SC requirements. To do this it keeps policies and procedures for actively monitoring the provider, including regular compliance reviews of investment limits and processes.

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