The revised Trust Business Law, which came into effect on December 30 2004, expands the types of business eligible to engage in trust business and the types of assets eligible to be held in trust. However, it also imposes more regulations on trustees and trust businesses.
New trust companies
Historically, only trust banks conducted trust business. Under the revised Trust Business Law, the government's position is to grant trust business licences to other types of companies as well. For example, a company specializing in digital content management recently acquired a licence to be a fully fledged trust company. Moreover, under the revised law there is now also a restricted type of trust company, which either acts only on the instructions of a settlor or merely maintains, uses or improves trust assets (without changing the character of those assets), and it must register with the appropriate authorities. One leasing company has already so registered.
Intellectual property trusts
Under the revised law, trustees of commercial trusts can now hold in trust numerous types of assets and rights, including IP. Some trustees have created trusts for patents and for copyrights to movies and animated television programmes. Typically under these IP trusts, the original holders of the intellectual property raise funds by selling beneficiary interests in the IP trusts to investors.
New restrictions on trustees
The revised law contains new regulations that apply to the operation of trustees and certain other persons with a connection to the trust. First, if a trustee consigns to a third party part of its trust operations, such as the collection of entrusted receivables or the custody and management of entrusted assets, then: (a) the consignment must be specified in the trust agreement; (b) the consignee must be capable of appropriately performing its duties; and (c) the consignment agreement must contain certain prescribed conditions required by law. The consignee must generally assume the duty of loyalty and other responsibilities of the trustee.
Second, the revised law imposes strict conflict-of-interest rules on trustees. Transactions between a trustee and a group company of the trustee or transactions between trust accounts of the same trustee are considered conflicting-interest transactions. These conflicting transactions are permitted only if the trust agreement contains a general description of the transaction and the transaction would not cause any damage to the trust assets.
Because the revised law was enacted and implemented in a short time and the Financial Services Agency generally strictly interprets the law, trust banks have had to modify their trust agreements and operations quickly to comply with the revised law.