Fiduciary Capacity Research Articles

With power comes responsibility: Mazzoleni v Summerhill

Abstract The exercise of a power held in a fiduciary capacity can be open to challenge in court. In Mazzoleni v Summerhill Trust Company (Isle of Man) Limited (2021) 2DS 2021/3 the Isle of Man High Court tackled the decision by a conflicted trustee not to appoint a protector who might have overseen its decisions. Was a trustee bound to appoint a protector in any case? And could a trustee be compelled to exercise a power to appoint a protector—even if the terms of the power were not mandatory?

Sustainable and Impact Investing: A Taxonomy of Approaches and Considerations for Fiduciaries

The application of sustainable and impact investing approaches to the management of investment portfolios has risen dramatically over the past three years due to a convergence of factors, including increased cross-generational interest and the enhanced ability of asset managers to utilize these approaches when seeking strong risk-adjusted returns. But two key challenges hold many asset owners and managers back from taking action: 1) confusion over the differences among the vast array of sustainable and impact investing disciplines and 2) lack of clarity on whether and how investors who serve in a fiduciary capacity can incorporate these disciplines. In this article, the authors introduce a taxonomy of sustainable and impact investing approaches, mapped to a set of guidelines for fiduciaries to consider in practice. This framework, based on a mix of market, legal, academic, and internal risk/return research, provides investors with guidance on applicability by ESG approach by account type, ranging from investment management accounts (both nondiscretionary and discretionary) to revocable and irrevocable trusts, to ERISA accounts. The sustainable and impact investing industry is at an inflection point where further growth will need to be supported by clear and well-supported frameworks—and this article serves to provide them. <b>TOPICS:</b>ESG investing, foundations &amp; endowments, portfolio construction, performance measurement <b>Key Findings</b> ▪ Despite significant growth in interest and inflows over the past three years, sustainable and impact investing has reached an inflection point where the industry is being held back by a lack of clarity on definitions and fiduciary applicability. ▪ Sustainable and impact investing can be split into four distinct approaches: ESG integration, ESG mandated, thematic, and high impact concessionary. ▪ A strong fiduciary framework with limits for the application within each approach should be guided by a focus on rigorous risk-adjusted return analysis, clear documentation, and checks and balances on implementation and ongoing monitoring. The authors offer a framework to align different types of ESG investments with various investment and fiduciary mandates.

Blockchain technology: Road to transform the Indian banking sector

Distributed Ledger and Blockchain technologies have grown greatly to provide solutions for diverse sectors, in particular the financial industry. Banks that are the county's financial pillar are obliged to boost the economic position of society as a whole. Banks' governance is made imperative by receiving and deploying huge amounts of un-collateralized public funds and by leveraging funds in a fiduciary capacity by creating credit. If any instability arises due to unethical management of one bank there can be adverse and harmful effect on the entire financial system which may result into early liquidation and as a consequence obstruct the smooth operation of the payment system. Therefore, governance of the banking sector is not just a formality but a dire need of society. Internalgovernance must be formulated and implemented in a way that the banking sector can work efficiently. In such situation, accepting new technologies provides alternative platform or possibly complementary method to monitor governance structure in the Indian banking sector. “The Blockchain technology is the distributed, decentralised ledger that records all the transactions”. The technology helps in keeping track of all transactions with transparency and the ledger does not have to depend on the intermediaries to inspect whether the loaned digital-asset has reached the anticipated participant. The research attempts to examine the existing mechanisms and the flaws of governance structure and provides an insight to how blockchain can restructure governancein the Indian banks.

Comment Letter of Professors John D. Morley and Robert H. Sitkoff on the Office of the Comptroller of the Currency's Advance Notice of Proposed Rulemaking on the Definition of 'Fiduciary Capacity' Regarding 'Directed Trusts'

In April 2019, the Office of the Comptroller of the Currency (OCC) issued an Advance Notice of Proposed Rulemaking (ANPR) on the definition of capacity regarding trusts. The ANPR references in particular the Uniform Directed Trust Act (UDTA) (Unif. Law Comm’n 2017). We served as the Reporter (Morley) and Chair (Sitkoff) of the drafting committee for the UDTA. Following the UDTA, we use the term “directed trust” to refer to a trust in which the terms of the trust grant a person other than a trustee a power over some aspect of the trust’s administration. As the prefatory note to the UDTA explains, “[t]here is no consistent vocabulary to describe the person other than a trustee that holds a power in a directed trust. Several terms are common in practice, including ‘trust protector,’ ‘trust adviser,’ and ‘trust director.’” The same is true for the trustee in a directed trust, who may be “sometimes called an ‘administrative trustee’ or ‘directed trustee.’” Following the UDTA, we will refer to a trustee in a directed trust as a “directed trustee,” a person who is not a trustee with a power over the administration of the trust as a “trust director,” and the power that a trust director holds over the administration of the trust as a “power of direction.” The hard question of law and policy raised by the proliferation of directed trusts is how to address the many complications created by giving a power of direction to a trust director, including in particular how to allocate fiduciary responsibility among a trust director and a directed trustee. The patchwork of modern state directed trust statutes, which to varying degrees has displaced the older but more consistent common law regime, has given rise to uncertainty that, in the words of the ANPR, may “make it difficult for institutions to assess and manage litigation risk and to understand OCC expectations for managing these accounts in a safe and sound manner.” We are in agreement that additional OCC guidance on directed trusts could be helpful. However, we have six concerns about the way the ANPR frames the issue, which we elaborate in this comment letter.

The Role of Forensic Accounting in Detecting Economic Crimes

The role forensic accounting plays in detracting crime and corruption in both public sector and private sector is the major focus of these journal. The objective of the research work seeks to discover the role a forensic accountant can play in the contest against crime by applying its investigative skills, providing litigation support service and documentation and reporting. The research design employed was the survey research. Data were majorly collected from primary sources. A well-structured 5 point likert scale questionnaire was used to elucidate information from the respondents, these results were analyzed using tables, simple percentages, and statistical analysis techniques chi-square and the results was used to validate or invalidate the hypotheses. The results of the empirical findings show that forensic accountants are relevant in investigating crime and corruption in both private and public sector in Nigeria. Forensic accountants play a role in litigation support services in organizational sector(s), and forensic accountants are relevant in documentation and reporting. It was detected that the forensic accountants play a significant role in shortening crime and corrupt practices in any sector since they provide a mechanism to hold people answerable, such that those who manage resources in a fiduciary capacity do not easily abuse that trust without detection. Amongst other proffered solutions, it was recommended that accounting professionals should always be proactive such that the members of the profession in Nigeria are kept abreast of emerging technologies, especially in the area of forensic accounting. Keywords: Forensic Accounting, forensic accountants,economic and financial crime DOI : 10.7176/RJFA/10-16-11 Publication date : August 31 st 2019

Maqas¯ . id Realisation in Islamic Finance: Components of Framework for Measurement Index

While Islamic finance has developed impressively across the globe, efforts have been initiated to measure the growth, its socio-economic impact and realizing the objectives for which the new system has been introduced. Some spade work has been done by experts from the platform of Islamic Research and Training Institute (IRTI), Islamic Devloping Banks (IDB), while Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and some individual researchers have made efforts at preparing rating scales/indices for measuring overall performance, Shar¯ı‘ah Compliance (SC) and governance. IRTI is considering about the comprehensive Socio-Economic Development that is multidimensional in nature and may involve other institutions like the State institutions and the Non-Governmental Organisations (NGOs) working for poverty alleviation or socio-economic development. This paper, however, focuses on developing the scales for measurement of the objective achievement by Islamic banks and financial institutions. Indices and rating scales are necessary to enable the stakeholders to make an opinion about any Islamic Banking and Financial Institutions (IBFIs’) adherence to Shar¯ı‘ah principles and its performance in fiduciary capacity. As SC is the raison d’etre of Islamic finance, the paper suggests two separate streams for the rating, one for measuring the SC level and the other for governance and fiduciary responsibilities. The both have been given weightage of 100 separately. Ultimate rating could be calculated by adding the score of the both streams. It has been suggested that in case any IBFI fails to get a certain minimum benchmark for SC, say 51 per cent, the rating assigned could be ‘non-satisfactory’, although it might get relatively good rating for the Governance stream. For the purpose of rating scale, the paper suggests weightages for various modes/instruments/products keeping in view their level of SC as also their role in realizing maq¯as. id al-Shar¯ı‘ah. Practically, however, it has been suggested that AAOIFI may like to constitute a Panel of Shar¯ı‘ah Scholars and Finance Professionals to decide the weightages to be given to various products for deciding Shar¯ı‘ah and governance based rating of the IBFIs. The paper concludes that introduction of suitable rating scales would be helpful in disciplining the IBFIs in terms of SC, governance and performance.

Evaluating the Imperative of Auditing in Situating Good Corporate Governance in Developing Economies: The Nigerian Experience

Auditing is one of the mechanisms adopted for effective corporate governance regime. There is often the need to have an independent body of persons who are to verify the records of stewardship prepared and recorded by those in fiduciary capacity to resource owners. Such reports which show the impact of management's decision on the worth of shareholder's wealth will lack creditability if not verified by an independent expert. This paper is aimed at evaluating the imperative of auditing in situating good governance in corporate businesses. The methodology adopted in this work is doctrinal anchored on appraisal and analysis. It was found that there is façade of corporate auditing as shareholders merely rubber stamp the financial statements presented to them sometimes assuming that the financial statements presented, having gone through internal audit controls, ought to be in order. It was further found that no matter how strict and consistent the rules of auditing are applied, it can hardly afford perfect protection against human factors such as susceptibility to errors, collusion and deceit. It is therefore recommended that the powers of corporate regulators or supervisory agencies should be strengthened and enhanced to include the power to ensure that auditors properly scrutinize the financial statement of the company since adequate accountability may not be achieved through a formalistic observance of the rules of financial reporting and auditing. This should be complemented by the activeness of the shareholders in ensuring good corporate governance. It is the place of the shareholders to consider and approve the appointment and remuneration of auditors as well as the financial statement in a general meeting so as to ensure that the board of directors observes financial discipline in the management of the company.

Does Banks’ Corporate Control Lower Funding Costs? Evidence from US Banks’ Control Over Firms’ Voting Rights

We investigate the effect of banks’ corporate control on the cost of bank lending. We exploit the fact that the shares banks hold in a fiduciary capacity can give them control over firms’ voting rights that are separate from firms’ cash flow rights. We find that banks offer firms an interest rate discount that is increasing with the bank’s voting stake in the firm. This finding is robust and appears to be driven by the bank’s voting rights. Banks offer larger discounts when they have more authority to exercise their voting rights, and no discount when they hold an equity stake that does not give them voting authority. Additionally, banks offer larger interest rate discounts to riskier borrowers, and firms that borrow from banks with voting rights experience lower stock volatility after they take out loans.

Možnosti harmonizace účetního výkaznictví pro malé a střední podniky

The most business entities in Europe are small or medium-sized enterprises (SME), which have a legal obligation to prepare financial statements in accordance with a set of accounting principles accepted in their country. Those statements are available to creditors, suppliers, and national governments but they could be badly understandable to creditors, suppliers and subjects in other countries. This is a great obstacle of their activities in the EU internal market. The existence of 27 different national accounting systems in the EU can be held for the most important obstacle.There are many ways how to develop compatible accounting standards for SMEs but the most significant activity in this field is the research project of IASB (International Accounting Standards Board). IASB has developed IFRS (International Financial Reporting Standards). Even though IFRS are suitable for all enterprises, their application in case of SMEs would be very expensive and could significantly increase compliance costs of taxation. This development has not been finished yet and there are still some problems which need to be solved before the introduction of accounting standards to the public. The research has shown that IFRS for SMEs should be used mainly by the entities which do not have public accountability – i.e. that its equities are not publicly traded and do not hold assets in a fiduciary capacity for a broad group of outsiders. This paper discusses those IFRS modifications, which should be done in case of SMEs.

The DOL Wants Ethically and Competently ERISA IRA Rollovers

The Department of Labor (DOL) has issued guidance, warning advisers still serving a retirement plan in a fiduciary capacity that soliciting IRA rollovers or cross-selling additional products to plan participants is prohibited. But plan participants are not a monolithic group. Their financial literacy as to retirement savings and general financial management concepts ranges from the illiterate to the sophisticated. (Discussed later in this article.) The poor decision-making as to retirement planning at a national level is at least partially a product of Department of Labor administrative policy. While providing educational investment materials to workers as to their 401(k)s is laudable in the abstract, it takes a somewhat pernicious form when these generalist materials are deemed sufficient in and of themselves to create investment retirement portfolios and strategies. The Department of Labor is, or should be, fully aware that the average American worker does not have the requisite investment acumen to year-in and year-out steer their 401(k) retirement strategies safely into retirement. Too much is at stake to sugarcoat this. This DOL behavior is negligent at best, and patently unethical otherwise.

Impact of Debt Equity Ratio on the Corporate Governance of Banks in Turkey

Before going into corporate governance of banks in particular, let us recall, just for the sake of context, why corporate governance is important in general. At its most basic level, corporate governance sets up the “rules of the game” to deal with issues arising from separation of ownership and management so that the interests of all stakeholders are protected. Empirical evidence shows that businesses with superior governance practices generate bigger profits, higher returns on equity and larger dividend yields. Importantly, good corporate governance also shows up in such soft areas as employee motivation, work culture, corporate value system and corporate image. Banks lubricate the wheels of the real economy, are the conduits of monetary policy transmission and constitute the economy’s payment and settlement system. By the very nature of their business, banks are highly leveraged. They accept large amounts of uncollateralized public funds as deposits in a fiduciary capacity and further leverage those funds through credit creation. The presence of a large and dispersed base of depositors in the stakeholders group sets banks apart from other corporates.

Discharging Fiduciary Debts in Bankruptcy

Under section 523(a)(4) of the Bankruptcy Code, a debt is not dischargeable if it results from “fraud or defalcation” while the debtor is acting in a “fiduciary capacity.” Although this provision has existed in various incarnations in the bankruptcy law since 1841, the meaning of both the terms “defalcation” and “fiduciary capacity” is subject to confusion and disagreement among the courts. This piece explores the meaning of these terms from the nineteenth century for today, and demonstrates that the best meaning of “defalcation” while acting in a “fiduciary capacity” is the failure of one who holds the funds of another in a trust-like situation to account for those funds. A split of authority among the circuit courts has existed for years regarding these issues, but the Supreme Court has recently granted certiorari to decide these issues in the case of Bullock v. Bankchampaign.

Persistent Confucion: The Circuit Split Over the Exception to Discharge for Defalcation Under 11 U.S.C. §523(a)(4)

Section 523(a)(4) of the Bankruptcy Code provides one of several exceptions to the discharge of debts that an individual debtor enjoys in bankruptcy. Specifically, that provision contains an exception to a debtor’s discharge “for . . . defalcation while acting in a fiduciary capacity . . . .” This provision regulates an area of personal bankruptcy law where the financial insolvency of the individual debtor intersects with his responsibility for some aspect of the financial dealings of the party to whom he owes a fiduciary duty. Particularly in the wake of recent corporate scandals and the current economic downturn, the ability of beneficiaries to recover from individual debtor-fiduciaries whose acts of defalcation have cause them economic loss can serve as an important remedy for and deterrent to carelessness and malfeasance. While the § 523(a)(4) exception to discharge may protect the victim of a debtor’s defalcation, it must be balanced with the countervailing purpose of the bankruptcy laws to provide an honest but unfortunate debtor with a fresh start. Part of a curt’s analysis in determining the applicability of the defalcation exception entails consideration of the level of intent with which an act of defalcation must be committed in order to qualify for the exception to discharge under § 523(a)(4). In September 2007, after reviewing what is called “persistent confusion” among its sister circuits in determining what exactly a defalcation entails, the U.S. Court of Appeals for the Second Circuit, in the case of In re Hyman, held that the exception to discharge for defalcation “requires a showing of conscious misbehavior or extreme recklessness . . . .” The First Circuit had previously adopted this standard. This Note argues that rather than the extreme recklessness standard of defalcation adopted by the First and Second Circuits or the innocent mistake standard of the Fourth, Eight, and Ninth Circuits, the Supreme Court of the United States, if confronted with the circuit split should adopt a mens rea standard modeled on the business judgment rule common to corporate law, which reflects the consensus of the Firth, Sixth, and Seventh Circuits that more than an innocent mistake is necessary for an act of misappropriation to constitute a defalcation. This willful neglect/recklessness standard makes the most interpretive sense in light of the goals of the Bankruptcy Code in general and of the structure and logical consistency of § 523 in particular.

To What Extent Would the Proposed IFRS for Small and Medium-Sized Entities ('IFRS for SMEs') be Independent of the Full IFRS System?

In its proposed IFRS for Small and Medium-sized Entities (February 2007), the International Accounting Standards Board (IASB) proposes that entities without public accountability, which the IASB calls small and medium-sized entities (SMEs) should be accounted for differently to publicly accountable entities (stock exchange listed companies and entities managing assets in a fiduciary capacity for a broad range of outsiders). External users of the financial statements of SMEs are said to have different information needs. To the extent that the information needs of external users of financial tatements are different depending on whether entities are publicly accountable or not, the regulations governing international financial reporting should also be different. Global financial reporting standards for SMEs would make comparison across borders possible. The IASB's objective is an independent IFRS for SMEs. Therefore the draft standard's dependence, among other things, on the full IFRS system affects the quality of the differential financial reporting model. The aim of this paper is to analyse the extent to which the draft standard is dependent on the full IFRS system. Recommendations to avoid any dependence are presented. No attempt is made in this paper to analyse the different information needs suggested by the IASB or the IASB's stated objective of an independent reporting standard for SMEs.

Does Banks' Corporate Control Benefit Firms? Evidence from US Banks' Control Over Firms' Voting Rights

In this paper we examine the importance of banks' corporate control by investigating the loan policy pricing effect of banks' voting stakes on their borrowers. We exploit the fact that banks may hold shares of firms in a fiduciary capacity to identify a clean measure of banks' control over firms. These shares provide no direct cash incentives to banks, but they may give them control over a stake of the firm's voting rights. Using a sample of loans taken out over the 2000-2002 time period, we document the instances where firms borrow from banks that have a trust equity investment in the firm and determine the share of the firm's voting rights that the bank controls as a result. Our investigation of loan interest rates shows that banks charge lower rates on loans to firms in which they have a voting stake, and that the interest rate discount increases with the bank's voting stake. These findings are robust to a number of firm- and loan-specific controls as well as to banks' selection of trust investments. Our investigation into the covenants of loan contracts also shows that banks are less likely to demand collateral and to impose dividend restrictions when they have control over a stake of the borrower's voting rights. These findings, together with the interest rate discount the bank offers when it holds a voting stake in the borrower, support the hypothesis that banks' corporate control over their borrowers is effective at reducing the agency costs of debt.

Institutional and Social Investors Find Common Ground

Institutional investors, acting in a fiduciary capacity, are increasingly using their leverage as shareholders to influence corporate behavior on social responsibility and governance issues. Most institutional investors tend to focus on shareholder advocacy—selectively engaging portfolio companies to help strengthen social, environmental, and corporate governance performance. Numerous examples of successful engagement have been seen in changes in company practices and policies or increased transparency on issues of concern. Motivated by the belief that long-term shareholder value is enhanced by their actions, more corporate leaders are evincing that fiduciary responsibility and corporate social responsibility are related and compatible goals.

Stimulating Government Technology Commercialization: A Marketing Perspective for Technology Transfer

ABSTRACT Federal legislation in the United States mandates that technology developed by federal government agencies must demonstrate socioeconomic benefits to justify the expenditure of funds as part of their fiduciary capacity. The mandate is operationalized by requiring federally funded agencies to seek socioeconomic benefits for the nation by developing programs designed to transfer government sponsored or developed technologies to the private sector. This mandate has led to substantial increase in the amount of technology transfer efforts by agencies, with limited results. Challenges include both the recruitment of firms to participation in technology transfer programs and weak efforts by recruited firms to fully commercialize products. This article posits that a marketing exchange approach to technology transfer will facilitate successful technology transfer and commercialization. A conceptual framework is presented from which to view government technology transfer efforts.

Comparative Personal Property: The Case of Shares

1.1 Nowadays shares are the primary store of wealth and have taken on the special position that used to be of land. Shares can be studied in company law and in the law of personal property. The subject remains the same, but the emphasis changes. This thesis analyses shares in and from the perspective of personal property. Two things follow, one represented by the ordinary vocabulary of property, the other to do with the definition of property. Thus, first, the vocabulary of property points to recurrent concerns of that area of law such as acquisition and protection, whereas the intricacies that characterise shares as the object of company law fade into background. Secondly, shares as personal property call for a more technical meaning of property as 'proprietary rights', as opposed to the generic meaning of property as 'wealth'.1.2 Shares are movables of an exceptional nature, because they do not comply with the rules dictated for ordinary chattels or intangibles. Traditionally, property in shares is acquired by entry of the transferee's name in the register of the company. Nowadays shares can also be held and traded through new market mechanisms: computerisation and globalisation have exacerbated the difficulties of legal analysis.1.3 Property rights in company shares have dominated major recent common law litigation. This litigation is often about companies becoming insolvent after dealing with the shares in a fiduciary capacity, e.g. as brokers or custodians involved in the trading of securities. There are obviously many aspects of ordinary stories of bankruptcy: those of company or insolvency law are usually given great attention. Somewhat surprisingly, the proprietary aspects have been neglected. This reflects the seeming indifference of the literature and of English law schools in the law of general property. A comparative perspective can help to make good this deficiency. It recurrently escapes legal observation that many claims in an insolvency context are no more than attempts to establish the priority of one's proprietary interest in the securities over other creditors.Acquisition and protection of property rights in shares are better tackled by observing how analogous problems are solved in other legal systems. The ultimate aim of this thesis is to gain some comparative insight from the standpoint of English and Italian law, thus verifying the actual meaning of some categories of the law property, among which ownership and possession, vis-à-vis the cases.

Executors and Administrators. Estoppel of Personal Representative from Asserting an Adverse Title to Estate Property Acquired in Fiduciary Capacity

Executors and Administrators. Estoppel of Personal Representative from Asserting an Adverse Title to Estate Property Acquired in Fiduciary Capacity

Fiduciary Capacity of Plaintiff in Stockholders' Derivative Suit (Clarke v. Greenberg, N. Y. 1947)

Fiduciary Capacity of Plaintiff in Stockholders' Derivative Suit (Clarke v. Greenberg, N. Y. 1947)