Research On The Prudent Investment Duty Of Trustee

With the feature to attract investors’ capital in large amounts, the collective investment trust is the most active part of China’s trust investment. However, the collective trust has shown the trend of severe risks apart from its prosperity. Recent years, many trust companies suffer from the frequent payment crisis, which deeply influence the whole development of financial industry. As the power of trustee expands without limits, clarifying the duty of trustee and building a specific standard have now been an unavoidable issue.The idea that the trustee should act with prudent care in trust investments is rooted in Anglo-American trust laws and practices, which is also generally defined as the duty of care in civil law countries. However, our country does not have an operative and specific standard in regulating the investment behavior of trustees. In practice, the fact that trust companies bear the obligation of paying the debt without any excuses contributes to the difficulty in recognizing the trustee’s liability, thereby rendering the protection of the trust assets and the beneficiaries becoming more likely to be excessive. Also, the full and healthy development of our country’s trust industry is adversely and extremely affected. Hence, this article is intended to dig into the trustee’s obligation in making investments of collective trust assets, which is based on the idea of prudent investment duty of care in Anglo-American legal systems.The Introduction briefly covers the aspects of characteristics and current development of collective trust investment as wells as the methods and significance of this research. The first paragraph outlines the status quo and characteristics of trustee’s investment duty of prudent care, in the context of the current legal regulations and supervisions of our country. This article believes that the lack of relevant legal institutions is the biggest issue of triggering the managing risk of trust investment, which is also the crucial part of resolving the problem of improving the specific prudent standard of care for trustees. Then it poses the question: whether trustee should be liable for investors’ losses under the situation that trustee fails to act with prudent? If so, to which extent should the trustee be liable?Beginning with the case of Zhongcheng Trust Company, the first chapter illustrates the main obstacles when trustee fulfill his obligation, such as trustee’s moral risk, the environment of market and so on. Author believe that investment standard will help to solve these obstacles.The second chapter focuses more on a few of problems with regard to the standard of prudent investment duty of care. There are several things needed to be clearly understood, which are(i)the contents of trustee’s liability;(ii)the degree of prudence, i.e., the limitations on trustee’s liability;(iii)the criteria for evaluating prudent investment, i.e., the question of using either the consequence or behavior standard. Second, since the prudent investment duty of care is originated from the trust laws of Anglo-American legal systems, the discussion on the prudent duty of care has to be considered together with the inspection on the history of the evaluation standard for prudent investment duty in American business trust laws. The author is making a comparative study of the duty of care in both case and civil law contexts, with the American history in relative respects of prudent investment duty of care being considered, thereby exploring the possibility of establishing the standard for our countries’ collective trusts.The third chapter focuses on the issue of establishing our country’s own prudent investment duty of trustee. First, on the basis of a basic prudent investment standard, a specific standard for trustee should be established. Second, the activities of a trust company should be regulated in order to reduce the risks. Under the condition that a trust company set up and broadcast a trust product,the company should fulfill its prudent duty by way of sufficient investigation, prudent introduction to settlor and continuously information enclosure. If the company violates the prudent investment duty,the company should be liable for the losses of the investors. Apart from that, the directors and managers of the company should be personally liable for the infringement of prudent investment duty if any personal mistake is made in the decisions made by the company.