On 1st August 2022, the Register of Overseas Entities came into force via the new Economic Crime (Transparency and Enforcement) Act 2022 (‘ECTEA 2022’).

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The register directly impacts anyone using offshore entities to hold UK land or property, including those in Jersey, Guernsey, Luxembourg and other commonly used jurisdictions. Each of these entities will need to register with Companies House to obtain an Overseas Entity ID (‘OE ID’), with the deadline for registration falling on 31st January 2023.

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For more information on the practical implications and requirements, please see our ECTEA 2022 Client Briefing. Most notably, however, anyone not complying with the registration requirements by the 31st January deadline can face criminal sanctions, including fines of up to £2,500 per day as well as a prison sentence of up to 5 years. In addition, the overseas entity will be restricted from buying or disposing of the land or property.

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Langham Hall was one of the first to register as a verification agent and we provide a full service covering the independent verification process, the overseas entity registration and the annual update. We have seen high demand for this service and expect demand to increase as we get closer to the deadline.

Langham Hall is an award-winning global provider of fund administration and AIFMD services to top tier fund managers. To hear more about how we can help, please do get in touch with a member of our team.

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Fund, corporate and transactional structuring is often complex, with tax considerations playing an important role throughout. The more tax a company pays, the lower the return to shareholders. Historically, this resulted in certain countries using low tax rates to attract international business.

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Tax treaties between jurisdictions have over time been implemented and updated to counter “treaty shopping” and aggressive tax mitigation schemes and to more fairly apportion taxable revenues across countries. However, to date, tax treaties alone have not solved these issues to the satisfaction of the G7 nations.

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BEPS & ATAD

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The Organisation for Economic Co-operation and Development has promoted a series of measures over more recent years, notably Base Erosion and Profit Shifting (‘BEPS’) and the Anti-Tax Avoidance Directives (‘ATAD’). These measures were primarily aimed at large corporates who have been subject to negative publicity due to aggressive tax planning. However, the funds industry has also benefited from tax treaties and tax mitigation structures to limit tax leakage and is also impacted by these initiatives. Alternative investment funds often use holding companies and other complex structures for a variety of reasons including segregating or limiting liability, financing, disposal planning and, historically, tax mitigation. Access to treaties or directives is often helpful through holding companies because withholding taxes and/or in some cases capital gains taxes, will be applied predictably and efficiently by the relevant jurisdiction.

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BEPS, ATAD I and ATAD II have in effect imposed certain minimum substance requirements on companies wishing to benefit from tax treaties. The EU’s most recent proposal, Anti-Tax Avoidance Directive III (‘ATAD III or the ‘Draft Directive’), further clarifies and extends these substance requirements. It marks the next step of the European Commission’s vision to provide a fair and sustainable European business tax system and to support the economic recovery from the pandemic and adequate public revenues for Member States. ATAD III will, if implemented in its current form, result in the benefits of European Directives and also the benefit of double tax treaties being denied to EU-based holding companies failing to meet minimum substance requirements from 2024.

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The Draft Directive

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Per the Draft Directive, the provisions apply not just to equity holding companies, but to holding companies of all forms of passive income including income from debt, IP and real estate. Whilst there are no material additional infrastructure requirements in ATAD III for multinational groups, the disclosure and reporting requirements may result in fund managers reassessing their operating models.

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The Draft Directive requires companies that, during the last two tax years, predominantly derived passive income (e.g., interest, dividends, royalties) or predominantly held real estate and/or shares, and that meet some other tests to report substance-related information to the tax authorities of their residence state. If an entity fails to meet the minimum substance requirements, it will be considered as a “shell entity” and any tax benefits otherwise available in the Draft Directive will not apply.

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The Draft Directive outlines three cumulative “gateway” criteria to identify whether an entity is at risk of being a shell entity:

• the entity mainly derives passive income (e.g., interest, dividend) or predominantly holds real estate and/or shares,
• the entity is engaged in “cross-border activities”, and
• the entity (partly) outsources its own administration and decision making.

An entity meeting each of the criteria will be considered “at risk” and will be required to disclose and document its substance in its annual tax returns by providing information on its premises, bank accounts, local director(s) or employees. This represents an extension of the disclosure and reporting requirements.

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If substance is not properly demonstrated, the entity at risk will be deemed to be a shell company and will therefore not be entitled to receive a tax residency certificate. As a result, the entity may not be entitled access to double tax treaties and/or EU Directives, which may result in a higher tax burden, particularly if the entity derives income from the EU or pays income to EU investors.

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It continues to be the case that funds, and fund managers ought to approach the holding company question from the starting point of where the key decision makers for the holding company are, or will be, located, rather than which jurisdiction gives the best tax result. Fund managers need to be fully prepared for any potential changes and new compliance requirements arising from ATAD III. Many managers have in place significant and robust infrastructure in the jurisdictions that their holding companies are established, so may not in practice need to make many changes to their operating models, however, it may be necessary for some managers to engage (or re-engage) their tax advisors to conduct entity/structure analyses and/or impact analyses to identify any current or future structures that may be impacted by ATAD III.

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It remains to be seen how ATAD III will in practice impact on structuring and exactly what level of substance will be implemented by fund managers. We predict that many will increase their local presence, by for example increasing headcount and office space, and when finalised it is certain that ATAD III will result in increased focus on this proper substance by funds, fund managers and the authorities alike.

Mid-market funds continue to raise capital successfully despite recent global events and looming macro-economic uncertainty, which have led to increasing signs of an industry-wide slowdown in fundraising.

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In addition, some of the big names in private equity are currently absorbing investors’ capital with new mega funds, including Carlyle Fund VIII, which aims to be the biggest PE fund ever raised at $27bn. However, despite both these factors, Langham Hall is seeing lower mid-market and mid-market strategies continue to attract institutional capital, as investors seek exposure to specific industry types or deal sizes. In June, Langham Hall’s Luxembourg office saw nine such funds raise an aggregate of €1.5bn of capital. Managers appear to want to raise capital ahead of a summer slowdown despite certain funds closing below their target size in some cases.

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Many funds are taking advantage of emerging healthcare, impact and technology investment opportunities. As such we believe there are opportunities for private fund managers to raise and successfully deploy capital in similar sector-specific strategies. Although undoubtedly there will be a few bumps along the way, caused by inflation and higher interest rates as well as the prospect of a prolonged war in Ukraine, there appears to be on-going confidence that private funds will provide exceptional returns to institutional investors in the long-term.

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Since opening in Luxembourg in 2014, Langham Hall has grown to 170 people, servicing blue-chip private equity and real asset fund managers from the UK and Europe. Langham Hall is an award-winning provider of Fund Administration, Depositary and AIFMD services to global fund managers. Please contact us if you would like to discuss this topic further.

When you join Langham Hall as a Trainee Accountant you will be given study support towards achieving your preferred accountancy qualification (ACCA or CIMA). Mixing study and full time employment can seem daunting but it is a rewarding challenge that will open career and promotion opportunities and further you knowledge of the field.

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We spoke with member of our Real Estate and Private Equity teams who shared their top tips to successfully juggle a thriving career while becoming qualified accountants.

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These are their best recommendations.

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Work and study tips:

• Create a study plan: This will help you pace your studies. Start as early as possible, ideally immediately after you got your results for the last exam. Have mini deadlines/milestones with what you want to achieve, and leave enough time to practice at least 5-6 past exam papers before the actual exam.
• Condense your notes: It helps to have minimised step solutions for questions with wordy answers but also for tackling the heavy numbers based questions.
• Strategically plan your leave: Book holidays strategically around exam dates, in advance, at the start of the holiday year to allow you enough time for exam practice as well as coordinate with your manager to maintain team deadlines.
• Use resources: Look for past exam questions and resources in your accountancy body’s webpage. Practice past exam papers closed book and to time, just like in real exam conditions. This will help you improve your time management and question answering technique. Read the technical articles as these will help you get a feel for what the examiner is looking for and can sometimes provide hints on topics which will be included in the upcoming exam.
• Understand the marking criteria: Mark your mocks using the marking grid from your professional body’s website (if available) and spend time reading the model answers from ACCA/CIMA website for the questions where you did not score well. This can highlight patterns in questions and where you can score the most marks.
• Pre-exam: Check exam registration deadlines, exam dates and locations. Ensure you are well rested.
• During the exam: Spend a few minutes at the start of each exam planning how much time you allow for each question (proportional to the number of marks per question). Be tactical with your time by tackling the questions that you are most comfortable with first and move on to the next question when you run out of time. On the day of the exam, it is not what you know/what you have read that increases your odds of passing, it is what you actually put down on paper under tight time conditions that makes the difference.
• Ask if you don’t understand: Langham Hall is full of people that have been in your position, there will always be people happy to help.

If you are interested in a career at Langham Hall, reach out to our HR team and check the latest vacancies here.

You’re finishing university and are considering what career path to take. You’re interested in financial services, investment, accountancy, alternatives assets. So what’s next?

We spoke to Lily Davis who joined the Langham Hall Graduate Programme in 2020 in the Private Equity team to share her experience and what it’s been like to start her career as fund accountant.

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What is your educational background?

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I graduated from the University of Birmingham in summer 2020 where I gained a First in Modern Languages (German and Spanish) and Business Management. At A Level, I studied Maths, German and PE.

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Why did you apply to join Langham Hall’s Graduate Programme?

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Having not studied finance and accounting at university, I loved the fact that Langham Hall’s Graduate Programme offered training towards becoming a fully qualified accountant. The fusion of practical and theoretical learning was something which piqued my interest in the scheme. The chance to work for a highly reputable firm and develop personal skills such as leadership and communication was also something which drew me to Langham Hall.

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How have you found starting your career in fund accounting? What kind of tasks have you completed / do you complete on a daily basis?

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Since joining in September 2020, I have had exposure to a huge range of tasks within fund accounting; bookkeeping, management accounts, payments, investor queries. Additionally, I have now successfully completed an audit, which provided a new challenge that I enjoyed undertaking. Having spent time preparing these key deliverables, I am now gaining experience in the review process; a rewarding task, allowing me to see how much I have learned within the last year and a half. This progression has been aided by members of my team who have supported me and my ambitions, and I have been given opportunities to broaden my horizons within my team, and on a larger, company-wide scale.

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What have you enjoyed the most about working at Langham Hall?

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I have always loved learning and working in a team. At Langham Hall, I am constantly learning and developing skills, while also working alongside a group of likeminded, aspirational people who are incredibly approachable and helpful. These factors keep the work interesting and enjoyable.

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How do you feel Langham Hall has encouraged your professional growth?

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I have been given many opportunities to develop professionally since joining Langham Hall. There are always chances to take on extra responsibility, either within your team, through having oversight of more tasks, or within the broader company, where you can complete extra trainings or join the various committees. The range of clients to work on also presents the opportunity to learn about multiple investments and the way the different Funds operate.

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Langham Hall offers study days and all necessary material for the accounting exams. Juggling work and study is arguably the most challenging aspect of the role, but one which is also incredibly rewarding and in-line with personal aspirations to become qualified. The tasks within my work have helped consolidate my studies, where I am able to put theory into practice.

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Where do you see yourself in 5 years’ time?

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In 5 years, I will have completed all my ACCA exams and be a qualified accountant. I will have accumulated extensive insight into the behaviour of Funds and successful investments. I plan to use this knowledge to manage my own team of people and find new challenges through which I can develop and progress professionally.

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What’s the best piece of advice you could give to someone who’s looking to apply to a Graduate Programmes?

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Be open to new learning experiences and embrace every opportunity. We learn most from asking questions and making mistakes, so have confidence in your intellectual aptitude and be inquisitive, because there’s always something to learn.

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If you are interested in a career at Langham Hall, reach out to our HR team and check the latest vacancies here.

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The rules for UK REITs were first introduced in the Finance Act 2006, and since then the number of UK REITs has grown to more than 100. In this time however, the real estate sector has evolved, and the number of large institutional investors in REITs has increased, meaning elements of the current regime have become outdated whilst creating an unnecessary cost and administrative burden for managers.

Following the 2020 Budget, HM Treasury launched a consultation on tax treatment of asset holding companies (‘AHCs’), which included REITs and their use by real estate fund managers. Following the conclusion on 23rd February 2021 of two consultations relating to AHCs, HM Treasury announced changes to the REIT regime aimed at enhancing the attractiveness of the UK for real estate investment.

The changes include amendments to the tax rules applying to REITs, and take effect from 1st April 2022.

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What are the changes?

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The proposed changes to the regime include amendments to the listing requirements, as well as changes to the tax rules for REITs. Most notable changes include:

• Listing requirement - Removal of the requirement for REIT shares to be admitted to trading on a recognised stock exchange in cases where institutional investors hold at least 70% of the ordinary share capital in the REIT.
• Equivalence to a UK REIT - Relaxation to the definition of an overseas holding structure to be equivalent of a UK REIT, so that the overseas entity itself, rather than the overseas regime to which it is subject, needs to meet the equivalence test.
• Holders of excessive rights - Removal of the ‘holders of excessive rights’ charge, where property income distributions (‘PIDs’) are paid to investors with a greater than 10% holding. This rule will be relaxed for shareholders entitled to gross payment of distributions (such as UK tax resident companies or pension funds).
• Balance of business test – if group accounts for a period show that property rental business profits and assets comprise at least 80% of group totals, a REIT will not have to prepare the additional statements which would be required to meet the full test. Further, non-rental income generated by a REIT in complying with certain planning obligations can now be disregarded in all parts of the balance of business test.

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What does this mean for fund managers?

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For real estate investors, the REIT regime has long been an attractive way to hold income generating property in a tax efficient manner. However, to date, the listing requirement has caused an additional burden for those managers looking to utilise the regime for the holding of income producing assets. More recently we have seen some managers using The International Stock Exchange for listing of REITs, where there is no free float requirement, but the listing requirement still remains.

Key benefits of the new UK private REIT:

• In the UK, a REIT is not taxed on income and gains from property rental business, with the tax being paid by shareholders upon distribution instead, the new rules will make it far easier for private fund managers to utilise a UK REIT to both attract new capital and also to hold real estate and distribute income in a tax efficient manner.
• The REIT brand is well recognised by global institutional investors, with around 40 countries globally currently having an equivalent regime.
  Removing the listing requirement will also reduce the administrative burden placed on managers and their service providers, so these structures will have a lower operating cost than listed REITs.
• In addition, REITs will qualify as a “relevant qualifying investor” under the new Qualifying Asset Holding Companies rules, making the REIT increasingly attractive for investing in non-UK assets whilst retaining structures onshore.

There are trade-offs to consider:

• Reduced liquidity when compared with e.g., a main market listed REIT, but for many institutional investors that routinely invest in closed-ended funds, this will be part and parcel of doing business in real estate.
• Managers also need to be aware that whilst a private REIT has a reduced operational burden when compared to a listed REIT, the REIT rules still need to be adhered to, for which specialist third party tax advisors are recommended.

How can Langham Hall help?

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Langham Hall remains the largest independent administrator of Real Estate funds in the UK, working with both listed and private REITs. We are able to provide a full suite of administration and AIFMD services to these structures, including REIT administration, accounting, depositary and host AIFM services.

With these new changes coming into effect on 1st April, we expect to see a rise in the number of managers utilising the new REIT regime, and indeed we are already working with several clients looking to take advantage of this.

Deciding what path to take after school can be a daunting decision, do you continue onto a Sixth Form, go to college, or consider an apprenticeship?

Apprenticeships are an exciting option, where you get hands-on training while simultaneously putting the skills you learn into practice.

As we celebrate National Apprenticeship Week 2022, we spoke to Samuel Highmoor, a trainee accountant undertaking an apprenticeship with our Internal Accounts team, whilst completing his AAT - Assistant Account Apprenticeship Level 3. We asked Sam to shares his experience and recommendations to anyone considering taking this route into employment.

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Q: Why did you decide to do an apprenticeship?
After being at university for two years, I wasn’t enjoying my course and didn’t see myself finishing it. I started an apprenticeship as this allowed me to carry on learning while entering the job market. This was good for me as I feel I am quite a practical person, all the things that I learn on my course apply back to something I am working on.

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Q: What kind of tasks have you completed / do you complete on a daily basis?
I run timesheet and debtors reports to help senior management see how the business is running. On a weekly basis, I process the payment run for suppliers and deal with administrative task on our Practice Management Software. I also do the bank reconciliations and have started taking on parts of management accounts preparations.

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Q: What has been your biggest challenge during your apprenticeship so far?
My biggest challenge has been managing my time and organisation of my workload. This includes learning how to create effective plans so that deadlines are met, whilst communication with my team on my current capacity to take on new work. This is an important skill I’m learning early on in my career as I continue to take on more responsibility. Being able to share my experience with my co-workers has meant that I’ve gained an insight into their work styles to help me develop my on working and organisation method. These are valuable skills that you learn outside of a traditional study environment.

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Q: What do you hope to be doing in five years’ time?
In 5 years, I hope that I am fully qualified as an accountant.

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Q: What’s the best piece of advice you could give to someone who’s looking for an apprenticeship?
I would highly recommend an apprenticeship, as you get both an education and work experience all in one. Apply to as many places as possible and don’t be afraid of being rejected. The right company and opportunity for you is out there. Find a team where you can learn and grow.

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Langham Hall offers a diverse range of apprenticeships spanning from our operations and compliance team to internal accounts and Technical/Systems. We are keen to widen the range of departments that support apprenticeships as the development of young talent ensures we are training staff from the bottom up. Team growth and succession planning are key to our talent strategy and apprentices are become increasingly important in supporting this aspect of our growth plans.

At Langham Hall apprentice’s sign-up to an 18 month or 3-year apprenticeship depending on the level of qualification they are completing. They are assigned to a specific department or business area where their job role directly relates to their qualification. Each apprentice has a mentor to support them through their qualification and study leave to allow time to complete their training programme.

If you are interested in our apprenticeship opportunities, get touch with our HR team.

On the 3rd December 2021, the Financial Conduct Authority (‘FCA’) and HM Treasury in the UK issued papers seeking industry feedback on proposed changes to the Appointed Representative (‘AR’) regime. The deadline for responses to the two papers is set for 3rd March 2022 and it is expected that the FCA will publish final rules on the back of their consultation paper in the first half of 2022. HM Treasury will consider responses and currently there is no stated expectation of immediate legislative changes.

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In this briefing, we set out a summary of the proposed areas of reform with more emphasis on the impacts on Appointed Representatives.

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The consultation on the proposed reforms is centred around (i) increasing information requirements from the AR to the Principal and correspondingly, additional information to be reported to the FCA; (ii) more stringent requirements on the Principal in relation to its own infrastructure and resourcing for monitoring ARs. Despite the concerns surrounding the usage of the AR model, the FCA believe that there continue to be benefits to the AR regime, including cost effectiveness, supporting FCA engagement with firms and providing an “incubator model” to allow unauthorised companies to trial new services and products, in turn allowing innovation and healthy competition.

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Proposed changes at onboarding stage

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In addition to the current information to be provided to the FCA, Principals will now need to file the following additional information on appointing a new AR:

• Primary reason for appointing the AR
• Nature of the regulated activities the AR will undertake
• Non-regulated business of the AR, including:
  Nature of the non-regulated business (financial services products or services or non-financial products and services)
  Proportion of non-regulated activities to regulated activities in the first year following appointment
• Whether the AR will provide services to retail customers
• Whether the AR operated under a different Principal previously and, if so, why it has moved
• Whether the AR is part of a group and, if so, the name of the parent firm
• Whether any individuals from the AR will be seconded or contracted to the Principal for portfolio management or dealing activities and, if so, the rationale for this
• Information about the financial relationship between the AR and the Principal
• Anticipated revenue from regulated and non-regulated activity for the first year after appointment.

This information must be provided at least 60 days before an AR is appointed, and the FCA public register is proposed to include the specific regulated activity the AR is authorised to undertake. In practice this appears to set a minimum AR onboarding period of at least 60 days. There is also the issue of industry clarity on what constitutes regulated and unregulated activities in order to properly make the disclosure and ensuring proper advice is taken in such matters. Existing ARs are not exempted from disclosing this information and the FCA will set a timeline for such information to be filed.

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Proposed changes for ongoing monitoring

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Any changes to the information filed at the onboarding stage will need to be notified to the FCA before or within 10 days of such change taking place (depending on the change). In addition, the Principal is required to verify that such information remains current annually, as well as file details of complaints regarding the AR, and details of the revenue streams from the regulated and non-regulated activities of the AR.

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The FCA has imposed more specific monitoring obligations on the Principal including:

• Scrutiny of the experience of personnel of ARs for the relevant business, and the time commitment to perform tasks and functions required in the business
• Oversight of the AR to be commensurate with the size of the AR’s business and the specific activities that it undertakes
• Consideration of the control and oversight framework for specific ARs
• Scrutiny of financial and management information
• Recommendation of adoption of a service level agreements to set out clear expectations around escalation of issues
• Consideration of potential risk of harm to the AR’s clients

Most of the above are to be reviewed at least on an annual basis and more frequently where the AR’s business has grown quickly in a short period of time, turnover in revenue or staff is unusually high, or where the AR changes its business model or scope of activities.

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Further obligations on Principals

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The FCA has set out specific circumstances where Principals should look to terminate the AR relationship including:

• Issues with the AR have not been resolved satisfactorily or within a reasonable time frame
• If senior management turnover at the AR is high and there isn’t a reasonable explanation
• If the AR carries on regulated activity not within the scope of the agreement
• If the AR intentionally misleads its customers in any way
• If any senior manager at the AR Is dismissed for gross misconduct

Additionally, there may be potential further requirements of Principals who are engaging ARs as part of a regulatory hosting business.

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HM Treasury’s call for evidence

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Separately to the FCA’s consultation, the Treasury is also calling for evidence on the AR regime and is exploring potential amendments that relate to the following areas:

• Changes to the scope of the AR regime
• Enhancing the role of the FCA in relation to the AR regime including potentially requiring an additional FCA permission to undertake a regulatory hosting business
• Placing more regulatory obligations on ARs by extending the Senior Managers and Certification Regime to AR personnel
• Extending the ability of Financial Ombudsman Service to investigate complaints involving activities of ARs including potentially making the
• Principal responsible for all the AR’s regulated activities, even if the AR is acting outside terms of agreement.

Next steps

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Whilst the above proposals are still in consultation stage and subject to change, the direction of travel is clear in that the data collection from the AR and oversight by the Principal will increase. We have seen recently that time frames for the appointment of ARs has lengthened and further enquiries from the FCA on new appointments are more frequent despite the new rules not having been adopted. The changes and increased responsibilities and liability on the Principal is likely to result in an increase in the fees from regulatory hosts for the appointment of ARs. The FCA itself has also since 2021 imposed a £250 annual fee for each AR and there is a requirement to consider the additional risks of the ARs on the calculation of regulatory capital of the Principal.

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As a result of these changes, some businesses may seek direct authorisation, but the case for acting as an AR of a specialised regulatory host remains a compelling one. Advantages include:

• No requirement to provide own regulatory capital which is now a minimum of £75,000 or a quarter of previous year’s overheads
• A reputable host will be experienced in the sector in which the AR wishes to conduct business, and can be a great resource on market information and best practice
• Access to specialised expertise on the practical implementation of the regulatory regime relating to the AR’s business
• Relying on a business specifically set up to keep up to date with regulatory changes in the specific sector as opposed to reliance on an internal compliance officer to digest the high volume of regulatory changes affecting the industry.

Current ARs and those businesses considering being appointed as ARs should take stock now to consider how the above proposed changes may change their existing, and proposed plans for personnel and business infrastructure. This should include considering regulated and non-regulated activities and whether the AR model is still the most suitable model for the business and/or whether their current Principal is still a good fit for their business.

We enter 2022 with the effects of the global pandemic still lingering, with restrictions continuing in pockets around the world. However, most countries find themselves in a far better position now than they were at the start of the pandemic, and the year ahead is much brighter.

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For our industry, alternative assets have proved resilient throughout the past two years, with a significant proportion of institutional investors looking to increase their allocations to private markets amidst record levels of fundraising during 2021. Looking to the next 12 months, we believe there remains a great opportunity for managers of private funds, but this will not be without challenges. Increased regulatory scrutiny, greater tax complexity, inflationary fears and enhanced competition for capital will all play their part. Below we set out some key regulatory events that managers should be aware of for 2022.

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SFDR

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The Sustainable Finance Disclosure Regulation (‘SFDR’) came into force on 10 March 2021, requiring managers of AIFs being marketed in Europe to make pre-contractual disclosures regarding how sustainability risks are integrated into their investment decisions.

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The next part of the SFDR is the implementation of the Regulatory Technical Standards (‘RTS’) rules. Originally planned to come into force on 1 January 2022, the RTS deadline was pushed back six months and will now come into force on 1 July 2022. This deadline will apply to managers of Article 8 or Article 9 products (i.e. not Article 6 products, nor those that do not promote ESG characteristics), and will only apply to those that promote two of the six environmental objectives outlined in the Taxonomy Regulation: climate change mitigation and climate change adaptation. The rules will apply to the remaining four objectives from 2023.

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For funds that meet these criteria, there are additional pre-contractual disclosures required, as highlighted by the relevant annexes of the RTS, as well as new disclosures in periodic reports. Broadly, these disclosures aim to provide transparency as to the success of the product in meeting its sustainability objectives. Clearly this is a complex piece of legislation that we are carefully considering on behalf of our clients.

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AIFMD II

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On 25 November 2021, the European Commission published its proposal for amendments to the existing AIFMD. Notable proposed amendments include:

• Changes to the National Private Placement Regime (‘NPPR’) framework
• Changes to delegation arrangements for authorised AIFMs
• New substance requirements for EU AIFMs
• Increased disclosures under Annex IV reporting
• Changes to the depositary framework

These proposed changes are yet to go through the standard EU legislative process, and we do not expect to see AIFMD II implemented until 2024 at the earliest, although managers should be aware of responses being issued by industry bodies as well as how these proposals might affect their business planning in the medium term.

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FCA consultation on Appointed Representatives in the UK

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The Appointed Representative (‘AR’) regime has been used by fund managers since the turn of the millennium, to assist those starting up a new regulated business in the UK. Recently, there have been a handful of appointed representatives that have been deemed by the FCA to have done “harm” to the regime, and it points to a lack of due diligence, or inadequate oversight by the principal as the cause of this.

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In response, the FCA has launched consultation CP21/34 in which it proposes changes to the regime, including requiring principals to provide more information on their ARs, as well as strengthening the responsibilities and expectations of principals. The FCA has requested feedback on these proposals by 3 March 2022 and we expect to see any proposed changes implemented subsequently. We will be publishing our own response to the consultation shortly.

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IFPR

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Following several consultations throughout 2021, the new Investment Fund Prudential Regime (‘IFPR’) rules came into play on 1 January 2022. The IFPR rules aim to streamline and simplify prudential requirements for firms regulated in the UK under MiFID, and the final rules can be found in FCA 2021/38 and FCA 2021/39. Key points to note include the increased regulatory capital requirements, new reporting and remuneration rules, and increased disclosure requirements.

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Annex IV Reporting for UK Funds

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A year on from the end of the Brexit transition period, some managers of UK funds now find themselves having to file multiple Annex IV reports in Europe. Whereas previously a single report was filed to the FCA, now managers that have raised capital under the AIFMD passport from a UK structure are required to file an Annex IV report in each country from which they have accepted subscriptions. 31 January 2022 will be the first reporting period for many of these managers, and you can read our update on this here.

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US Private Fund cybersecurity rules

From 9 December 2022, private funds in the US that are excluded from the definition of “investment company” will face increased cybersecurity requirements under the Federal Trade Commission’s Safeguards Rule. This will include a requirement for multifactor authentication to access customer data, encryption of data when sending and storing, and updates to record retention procedures. Private Fund managers should consider how the rules may affect them well in advance of the December deadline.

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Clearly there are, as ever, several new regulatory developments for fund managers to keep abreast of. We are keeping a close eye on all these developments and are happy to discuss how we may be able to help in each case.