In January, 2011, the National Assembly of Nicaragua approved Law No
741 that regulates trust agreements in Nicaragua. This is the first time
that trusts have been regulated by law. The law declares that the
regulation of trusts will have the purpose of allowing management of
assets, execution of public and private investments, and creation of
securities, among other things.
The law defines several relevant topics, including assets that can be
transferred to a trust, formalities for the transfer, minimum content
of the trust Agreement, and rights and obligations of each party to the
contract. There are different types of trusts depending on their
purpose, such as: management of assets, creation of securities, life
insurance, investments, pensions, and other types created by the parties
within the limitations detailed in the law.
The law also makes a clear distinction depending on the nature of the
trustee, and mandates that particular rules to complement the law shall
be approved by the executive branch, in the case of non–financial
institutions, and by the Superintendence of Banks, in case of financial
This legislation is very important for financial institutions and
particularly for banks because the General Banking Law of year 2005
included as a permitted activity for banks the execution of a trust
according to the special laws that regulates the matter, but no special
laws had been approved before 2011. Banks, as heavily regulated
institutions, usually are the first choice for parties that need to work
with a trust structure. Several banks have created a particular trust
division to handle these operations.
In compliance with the mandate of the Trust Law, on May 2011 the
Superintendence issued a prudential regulation that creates the legal
framework for the execution of trust operations by financial
The board of directors of the financial institution will be
responsible for approving the objectives and written policies that may
allow such body to perform an adequate supervision of the risks
associated to trust operations in which the institutions takes part.
The regulation sets forth various general guidelines. Firstly, it
sets out that a financial institution must establish a clear separation
between its strategic activities and risk taking, with respect to those
activities of processing and registration of transactions.
It also states that financial institutions that perform activities as
trustees must have human, financial, technological and logistical
resources that are according to the nature, responsibilities, size and
complexity of the trusts that they manage.
A financial institution must create an organic and functional structure that is segregated from its other structures.
If some acts or functions regarding trust operations may be subject
to outsourcing, the financial institution will have to comply with the
particular regulations that deal with outsourcing activities of
Financial institutions must also establish internal controls
necessary to identify, mitigate and follow up potential conflicts of
interest between the different participants in the operations of the
Finally, financial institutions must establish mechanisms for the
monitoring of internal controls implemented to mitigate the risks
associated with trust operations.