Welcome to Legal Shorts, a short briefing on some of the week’s developments in
the financial services industry.
Listen to this week's Legal Shorts on CLTV by going to
If you would like to discuss any of the points we raise below, please contact me or
one of our other lawyers.
020 7585 1406
LLP tax changes delay
The House of Lords has called for the new LLP tax rules to be delayed and
urged the government to consult further before making any changes. In its
report on the draft Finance Bill 2014, the HL Economic Affairs Committee
has said that implementation should be delayed for a year as the measures
are so different from those consulted upon, that more time is needed to get
the legislation right. The new rules would remove the presumption that an
LLP member is a self-employed partner for tax purposes and replace it with
a three-condition test based on profit sharing, management and capital. The
rules are due to come into effect on 6 April 2014.
AIFM partnership guidance
HMRC has published the guidance form that allows members of an AIFM
partnership to allocate certain restricted profits to the partnership. One issue
highlighted was that the interaction of the AIFMD and the rules regarding
the taxation of partnerships could adversely affect AIFM partnerships. The
partners involved could become subject to tax on profits that they cannot
access due to AIFMD's restrictions. As a result, the draft legislation allows
an AIFM firm to elect, from 6 April 2014, for all or part of a partner's
"relevant restricted profit" to be allocated to the firm. The firm is then taxed
on that profit but once any, or part, of an allocated amount vests in the
partner, it is treated as part of the partner's profit share. The guidance
explains, among other things, when and where to send the election and the
information to include.
Delegated Regulation on types of AIFMs
The European Parliament has updated its procedure file on the proposed
Regulation setting out RTS determining types of AIFMs. The procedure file
indicates that the Parliament has extended the time frame it has for
examining the Regulation by three months. The RTS specify the
characteristics of AIFMs managing open-ended AIFs and ESMA submitted
an opinion on them last August to the European Commission following
concerns raised by the Commission.
FCA quarterly consultation (No. 4)
The FCA has published its fourth quarterly consultation on proposed
amendments to a number of different parts of the FCA Handbook. The
amendments include: (i) changes to the Handbook impacting AIFMs,
UCITS managers and certain AIF depositaries; (ii) changes to the
complaints data reporting form and updating Handbook guidance; (iii)
technical changes to implement the FPC’s recommendation on interest rate
stress tests for mortgages. Comments are invited by 6 May 2014.
CRD IV delegated Regulations
The European Commission has published the texts of seven delegated
Regulations that it has adopted containing RTS required by the CRR and
CRD IV. The delegated Regulations contain RTS relating to the following
issues: market risk, credit risk and operational risk, credit valuation
adjustment risk, covered bonds and information exchange between
competent authorities on firms passporting under CRD IV. The next step
will be for the Council of the EU and the European Parliament to consider
these delegated Regulations.
Proposed Benchmark Regulation delay
According to reports, the European Parliament has postponed its vote on the
proposed Benchmark Regulation following disagreement regarding the
inclusion of commodities within its scope. It has now been agreed that it will
be postponed until after the May 2014 elections, when the next Parliament
will consider and vote on it. It was also stated that, in addition, the main
centre right EPP party had sought a delay so that lessons from current
regulatory concerns regarding the FOREX market could be applied to the
Benchmark Regulation. It also notes that some MEPs blame the vote
postponement on lobbying by industry interests.
Treasury publishes report regarding November 2013 Financial Stability
The Treasury has published the record of a meeting held between the BoE
governor and the Chancellor to discuss the November 2013 Financial
Stability Report. The record states that the discussion focussed on three
areas; (i) the FSR assessment of financial stability; (ii) UK housing market
developments; and (iii) the Financial Policy Committee’s priorities over the
next 18 months, identified as the medium-term capital framework for banks,
ending ‘too-big-to-fail’ and shadow banking. The Chancellor emphasised
the government’s support for high prudential standards in line with the Basel
agreements and welcomed the FPC’s focus on this.
ESMA publishes risk dashboard
ESMA has published its risk dashboard for the first quarter of 2013, together
with a report on trends, risks and vulnerabilities for the second half of 2013.
The report assesses the performance of EU securities markets, considering
trends and risks, to develop a comprehensive picture of systemic and macro-
prudential risks in the EU for the use of national and EU bodies in their risks
assessments. In the report, ESMA identifies that, during the period covered,
EU securities markets and investment conditions in the EU improved, based
on better macro-economic prospects, which also contributed to reduced
systemic risk. However, overall risks remained at high levels for EU
securities markets, especially surrounding the global economic outlook and
potential vulnerabilities in emerging markets.
New FCA Handbook forms on consumer credit
The FCA has updated its Handbook with details of new forms and
amendments or deletions of existing Handbook forms in light of the CA's
final policy for a consumer credit regime. Among other things, the forms
relate to: variation of permission (VoP), complaints reporting, appointed
representative appointment and notification, applications for certain
directions under the Consumer Credit Act 1974 and auditor's client assets
reports. The updates are due to take effect on 1 April 2014.
This week, Rosie Wild, associate at specialist financial and commercial
disputes law firm Cooke, Young & Keidan, updates us on the new Banking
Reform Act, as follows:
“The Banking Reform Act, which received Royal assent last December,
introduces the new criminal offence of reckless misconduct in the
management of a bank (sections 36 - 38). The offence will cover senior
persons (covered by the new Senior Managers Regime) in banks and
building societies, but not credit unions or insurers. Senior persons will be
liable for the offence if:
(i) they take a decision, or fail to prevent a decision, which they were aware
may cause the bank to fail;
(ii) their conduct falls far below what could reasonably be expected of a
senior manager in that position; and
(iii) the bank does indeed fail as a consequence.
The Commission envisages ‘failure’ to encompass very serious cases only,
such as where there is a substantial cost to the taxpayer or the bank’s
customers, or where there are lasting consequences for the financial system.
The maximum penalty on indictment is seven years in prison.”
If you would like to discuss the above or receive further information
regarding the new Act and/or the Senior Managers Regime, please contact
Rosie Wild at Rosie.Wild@cyklaw.com.