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Dec 01, 2014

Registration of Financial Trust December 31, 2014 Deadline

By Tim Holzer

In Cambodia, Financial Trust (e.g., subordinated debt and trust funds which are managed by banks (“Banks”), microfinance institutions (“MFIs”), non-governmental organizations (“NGOs”), and possibly other organizations) are subject to registration and regulation.  The applicable laws include the following: Sub-Decree 476 on Financial Trust, dated 26 August 2013, (the “Sub-Decree”); Prakas 1041 on the Management and Monitoring of Financial Trust, dated 26 September 2014, (the “Prakas”); and Announcement of the Registration of Financial Trust, dated 12 November 2014, (the “Announcement”).

The Announcement is specifically directed to banks, MFIs and NGOs:  “[b]anking and microfinance institutions and non-governmental organizations that currently manage subordinated debt and trust funds” must register as a Financial Trust with the MEF “before 31 December 2014.”  However, it may be that other entities and organizations may also be subject to Financial Trust provisions.
Although the Announcement specifically mentions “subordinated debts and trust funds”, the Prakas states that Financial Trust extends to “[receipt] of financing funds, donor grants, or subordinated debt.”
A failure to timely register as a Financial Trust or the failure to comply with the regulatory requirements may lead to confiscation of the trust, and possibly criminal and civil penalties.  
There is some lack of clarity as to which subordinated debt and funds (and at what balance) should be declared and registered as a Financial Trust. If the institution is carrying on its books  subordinated debt, or donated funds, or is managing (or being managed by) a trust, then the Bank, MFI, NGO or other entity or organization should immediately take steps to (a) muster and review all of its documentation relating to the potential trust asset, and determine whether a trust circumstance may exist; (b) carefully consider whether it must register a Financial Trust; and (c) take steps (if required) to register as a Financial Trust prior to 31 December 2014.  
A Financial Trust is created by a registration at the MEF (see, Article 6, of the Sub-Decree):  “[t]he trustee or the Trustor shall sign, in person, before the officials of the General  Department of Industry-Finance of the Ministry of Economy and Finance” (Article 7, Prakas).  Registration will require the submission of several documents, including the following: (a) a Financial Trust Instrument (with Code of Conduct of Trustee), which specifies some thirteen maters; (b) the Financial Trust Application Form; and (c) a Background of Trustee in required format; and (d) supporting documents such a licenses and/or letters from ministerial authorities
Although there may be some debate as to what “financing funds” and “subordinated debt” and “trust funds” may mean, the following definitions are set out in the Sub-Decree:   
i. “Subordinated Debt:  Means a fund or a nonrefundable amount of funds of development partners used by any legal entity in the purpose of continuously development activities of banking and microfinance sector under the Subordinated debt agreement;
ii. Subordinated Debt Agreement:  Means an agreement made and entered into between the Ministry of Economic and Finance and development partners to obtain the subordinated debt to manage on their behalf in the purpose of continuously development activities of banking and microfinance sector;
iii. Trust:  means the properties or funds receiving as donation or a nonrefundable debt from development partners entered into the agreement with the Government that are under the management of the Bank and Microfinance Institutions”; and 
iv. Trustee: Means a natural person or a legal entity that is responsible for the governance and oversight of the Financial Trust registered at the Ministry of Economy and Finance.”
The Prakas further requires “a [contribution] of 0.5% (zero point five percent) of the balances of the Fund for Support and Development of Financial Trust Sector each year.”
A discussion of Financial Trust is on the agenda at the upcoming Working Group D meeting on Thursday, December 4th.
Sciaroni & Associates Banking & Finance Practice Group’s expertise in banking and finance encompasses a broad range of advisory experience, much of it related to ensuring compliance with prevailing laws. Sciaroni & Associates’ talented team of professionals can help with drafting of security documentation and all aspects of bank licensing in the countries in which we operate. Our staff of expat and Cambodian experts review loan agreements, ensure banking corporate compliance and provide advice on finance structure.
Sciaroni & Associates is a leading business and investment advisory firm serving Southeast Asia since 1993 with offices in Cambodia, Laos and Myanmar.  Sciaroni & Associates assists clients in understanding the complex business conditions in those markets while efficiently identifying and resolving issues following strict international ethical standards.  Our firm provides experienced advice and seasoned business insights to many of the world's leading companies, governments, economic think tanks, global development funds and international NGOs. 
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Sciaroni & Associates is a leading professional and investment advisory firm doing business in Southeast Asia since 1993. Based in Cambodia with legal offices in Laos and Myanmar, we provide experienced advice and business insights to many of the world’s leading companies, governments, economic think tanks, global development funds, international NGOs and the Royal Government of Cambodia in accordance with strict international standards.
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