Financial Trusts– The role of trustee, settlor and beneficiary

Through General Resolution No 530, published in the Argentine Official Gazette on July 14, 2008 (the “Resolution”), the Comisión Nacional de Valores (the “CNV”) amended Article 3 of Chapter XV (“Trusts”) of its Regulations (the “CNV Regulations”), reinforcing the prohibition to create financial trusts by means of unilateral acts, i.e. cases in which a single person acts both as trustee and settlor. The aforementioned prohibition was originally set forth in the CNV’s General Resolution No 447 dated August 28, 2003, was commented in Marval News # 21 dated September 30, 2003.

Additionally, the Resolution establishes that “The roles of the trustee and the settlor shall be clearly distinguished, as essential parties to the trust agreement, from the role of the beneficiaries”. In this sense, the Resolution emphasizes the need to distinguish the roles of trustee and settlor from the role of the beneficiaries. However, independently from the fact that the Resolution strikes the need for such differentiation, it does not prevent a single person from acting both as settlor and beneficiary, as a response to the concerns raised by the market participants through the process described below.

Pursuant to the abovementioned, and although the Resolution does not forbid the settlor from acquiring securities issued by the trust, it limits the settlor’s capacity, setting forth that whenever a settlor holds such securities same may attend beneficiaries’ meetings, but shall not be allowed to vote in case of conflict of interest.

On the other hand, regarding trusts in which the underlying assets are fully or partially integrated by money or other liquid assets (“Money Trusts”), the Resolution establishes that in order to provide financial consumers with an appropriate, effective, and correct understanding of the transaction, the prospectus and/or prospectus supplement cover shall include a statement in bold letters, alerting potential investors about the settlor and beneficiary’s roles, in addition to the advice that is requested from placement agents and other intermediaries who participate in the public offering.

Lastly, the Resolution does not include financial trusts created as “direct investment funds”, pursuant to Section 23, Chapter XV of the CNV’s Regulations.

Prior to its enactment, the CNV submitted a proposal of the Resolution to market participants and the public in general, for its review and consideration, which resulted in several modifications to the preliminary resolution published by the CNV.