Mythbusting
The extent of the myths that require further clarification in relation to the trustee environment suggests that the up-and-comers have more work to do.
SMITH It is a myth that trustees are required to hold multiples of tens or even hundreds of what the regulator requires a trustee to hold in capital. Given limitation-of-liability and professional-indemnity insurance this is completely unnecessary. To the best of my knowledge there has never been a situation where a trustee’s own balance sheet was called upon.
GOUMENIS This is correct. Limitation-of-liability clauses are very carefully crafted so they only come into play in extremely rare circumstances. Fraud is the only example that springs to mind immediately.
I have never seen anyone try to prosecute a trustee in a transaction because of the limitation-of-liability clause.
HOWARD It is professional indemnity (PI) that a client relies on in this type of circumstance. I don’t know of any trustee companies that have had to pay out from their own balance sheet.
SMITH Whether an entity is small or large it will have a certain insurance requirement that it needs to maintain for its licences. In addition, many transaction documents also have a minimum PI requirement.
Aside from a company’s profit-and-loss statement being an indicator of the viability of the company as an ongoing concern, a large balance sheet is not a sign of strength in a trustee.
HOWARD This comes back to the fact there is a general misconception. It is all well and good to be part of a big organisation – indeed, Australian Executor Trustees is part of a big organisation, which has its advantages. It is easy to assume that a big organisation with an associated balance sheet is more safe and stable than a smaller one.
But more important are the checks and balances the organisation has in place, the people who have to make the decisions, and the additional skills, experience and knowledge these people on the ground have.
Aside from a company's profit-and-loss statement being an indicator of the viability of the company as an ongoing concern, a large balance sheet is not a sign of strength in a trustee.
CONNELL We could better educate offshore clients around the qualifications an agent or trustee needs to have, such as an Australian financial-services licence.
WHITE Another frequent misconception is that a trustee is ‘just a rubber stamp’. Some people seem to think trustees should just accept what they’ve been given and not slow the process down. They need to understand that we have fiduciary duties to discharge.
Another is that we are just an asset holder and a processor of transactions. We have a range of other duties that we undertake as well.
HOWARD There is a misconception that to act as a trustee in a securitisation transaction requires a unique set of skills and knowledge. This is something else that is simply not true. They are no different from other types of structured transactions that use trust arrangements.
GOUMENIS What about the myth that it is too hard to change trustee companies? It is not impossible by any means. There are a number of factors to consider and it also depends on the structure – if the assets are generated in the name of the trustee firm it can be more complicated. But it is achievable.
It is a question of understanding that there will be some initial cost involved. But if this is a long-term proposition presumably savings can be made through the life of the relationship.
CONNELL Cost is often discussed. But stakeholder feedback shows that value is more important. It is an investment to novate agreements. But people can take haircuts, and arrangements can be made to amortise the cost. It just needs people to think laterally and sometimes outside the box.
SMITH We have just completed a transition agreement from another entity. It took us two months.
HOWARD That’s right. It isn’t something that’s possible on a whim and there are a lot of moving parts. But with careful planning and communication between parties it is possible to facilitate a smooth process.
HOFMAN In Australia we have one of the healthiest, active securitisation markets in the world. As we all know, the market has been dominated by residential mortgage-backed securities issuance. However, we have seen good growth in alternative asset classes. On the back of this, I would argue the market has matured to a point where we can and do welcome different points of view and perspectives.
