How to set up an investment manager in the uk cummings final

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How to set up an investment manager in the uk cummings final

  1. 1. How to set upan InvestmentManager inthe UKwww.cummingslaw.com
  2. 2. www.cummingslaw.comIncorporationAn investment manager in the UK will generallybe set up either as a limited company or as alimited liability partnership (LLP). This choiceas to formation will depend upon a number ofissues, including management and control, size,key individuals, employees, for example, but oneof the key factors usually centres around thequestion of taxation.Whereas a limited company is taxed separatelyfrom its shareholders and is subject tocorporation tax and to NI contributions inrespect of its employees, an LLP is regarded asa corporate entity, which confines the liabilityof its members to the assets of the LLP, but itis ordinarily tax transparent i.e. it is taxed likea partnership in that each of the members aretaxed as partners, each being liable for tax ontheir share of the income or gains of the LLP.The accounting and filing requirements for anLLP are broadly the same as those of a limitedcompany, but another important differenceis that a shareholders agreement is a publicdocument, whereas any agreement betweenthe members of an LLP (the LLP agreement) isa private document which is confidential to themembers.Thus, before deciding upon which type of entitythe investment manager should be, it wouldbe advisable to seek tax advice as to whichcorporate formation would be beneficial in theparticular circumstances.FCA AuthorisationAn investment manager in the UK is required tobe authorised by the Financial Conduct Authorityin the UK (FCA). Pursuant to the FinancialServices and Markets Act 2000 (FSMA), a firmcarrying out a regulated activity in the UK mustbe authorised by the FCA and will be subject tocontinuing regulation by the FCA. Investmentmanagement will generally be a regulated activityin the UK if carried out in respect of certainspecified investments, as set out in the FinancialServices and Markets Act 2000 (RegulatedActivities) Order 2001.The firm will need to apply for authorisationand individuals who will be carrying out certainkey roles (known as controlled functions) atauthorised firms must also obtain approval fromthe FCA before doing so. Approval for both thefirm and the individuals is commonly applied forat the same time and the authorisation processcommonly takes between four to six months.FCA ApplicationAn FCA application requires a certain amountof preparatory work and applicants need tofamiliarise themselves with the FCA Handbook,which contains the rules of the FCA, particularlythe Principles for Businesses (PRIN) as these arefundamental to the entire regulatory regime.The FCA requires all applicants to demonstratethe following:(i) that they have adequate financial resourcesto meet the minimum financial requirementsfor their particular prudential category (PRU);(ii) that they have determined the systems andcontrols they will need to put in place inorder to support their activities and complywith relevant rules (SYSC);(iii) that the relevant staff are approved or will beapproved to carry out controlled functions(SUP); and(iv) that they have determined which of theirstaff will require professional qualifications inorder to perform their roles (TC).How to set up an InvestmentManager in the UK
  3. 3. www.cummingslaw.comThe application process itself is a single process,which means that all applicants have to complybroadly with the same application requirements,but the amount of information required will, ofcourse, depend on the nature of the business.Each applicant has to set out clearly in itsapplication the regulated activities which itrequires permission to carry on.The application is time-consuming and quitecomplex and certain documents need to besupplied for an investment manager In addition,the applicant must include terms and conditionsand an investment management agreement,both of which must be FCA compliant as well asbeing commercially and legally correct. Due to itscomplexity, it is very common for counsel to beinstructed to prepare the application pack.Costs of setting up in the UKThe costs of establishing the investment managerin the UK could include the following:(i) incorporation costs (similar for bothcompany and LLP);(ii) preparation of articles of association (forcompany, can be off the shelf) and the cost isincluded in the incorporation costs above;(iii) preparation of shareholders agreement/LLP agreement which will vary according tostructure and complexity;(iv) costs related to FCA application, includingapplication fee and requirement forminimum regulatory capital. Again, this willvary depending on complexity and structureand will include the FCA’s own fee;(v) preparation of an investment managementagreement, and possibly advice on themarketing rules;(vi) costs of introducing systems and compliance;and(vii) taxation and legal costs in relation toadvice on the above which again will varydepending on the UK issues as well as anyoffshore considerations.Prospective managers should note that the FCAwill require them to maintain regulatory capitaland make at least quarterly reports, which willinclude financial reporting. Some firms may liketo take compliance and/or accounting help withthe returns.Accountants will also need to be appointed toconduct an annual audit of accounts.Other set up and on going costs will be thoseexpected in the normal course of commercialevents.
  4. 4. 42 Brook Street, London W1K 5DB +44 20 7585 1406 | Neuhofstrasse 3d, CH-6340 Baar +41 41 544 5549Regulated by the Solicitors Regulation AuthorityThis document is for general guidance only. It does not constitute adviceMay 2013

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