more rough winds that shake the darling buds of may' breakfast seminar, 20th may 2015
TRANSCRIPT
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'More Rough Winds that shake the darling Buds of May‘ 20th May 2015
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POST ELECTION TAX IMPLICATIONS
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LAURENCE PARRY Private Client Partner
Summary of outcome
o ‘Wasn’t expecting that’
o So, nothing has changed?
o Strictly true, but
o Lots of changes in the offing already
o Plus some more from the election
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5 year ‘tax lock’
o ‘No increases in income tax rates’
o ‘No increases in VAT – nor an extension of its scope’
o ‘No increases in National Insurance – nor an increase in its ceiling’
o Still lots of flexibility – reduction in
allowances, changes to corporation tax,
IHT, CGT and other taxes
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£5bn from tax avoidance
o Where?
o Diverted profits tax?
o Accelerated Payment Notices?
o We wait to see!
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Inheritance tax
o ‘Take £1m homes out of IHT’
o Equates to £175k per person ‘main residence relief’
o £175k + £325k nil rate band x 2 for spouses/civil partners
o Relieve withdrawn for estates over £2m
o Fully withdrawn where estate over £2.3m
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Pensions
o Big changes already introduced
o E.g. flexible withdrawals
o No need to buy annuity
o IHT free
o Potentially as big to come
o Restriction of lifetime allowance to £1m
o Withdrawal of relief above £150,000 income
o No further changes for life of Parliament
o Said that about non-doms
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£1m lifetime allowance
o 55% charge on benefits exceeding life time allowance
o Power of compounding
o E.g. 50 year old, £290k defined contribution scheme; £9k pa defined benefit; paying in £18k pa.
o Assume 3% growth over CPI
o Reach LTA at 65!
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Restriction of relief
o Currently can pay £40k pa gross into pension
o Can carry forward unused relief from 3 previous years
o Relief limited to earnings
o Proposal that £40k is tapered above £150k pa
o Once reach £210k, limit is £10k
o Bonuses?
o LLP member may not know income until after the tax year and may have overpaid
o Nightmare for defined benefit scheme
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Non-doms
o Not much change
o But Conservatives have said that they will repeal the ‘inherited’ non-dom status
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EU
o Not a tax issue
o But will have tax consequences
o E.g. – VAT is a European tax.
o If leave EU, what is status of law?
o ECJ rules on cross border issues to free up trade
o Do these judgements still apply?
o Will they apply in future?
o How will disputes be resolved?
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REMUNERATION AND VALUATION
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BOBBY JOHAL Managing Consultant, Technical
Remuneration and Valuation
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o Remuneration
o EBA consultation on the proposal to extend certain remuneration requirements to all IFPRU Firms
o Valuation
o FCA consultation on Valuation
Remuneration
o European Banking Authority Draft Guidelines on sound remuneration policies under CRD IV (EBA CP 2015 /03)
o Replacing guidelines issued by CEBS in Dec 2010
o Impact all IFPRU Firms
o Particularly level three
o BIPRU firms remain under CRD III under derogation
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Remuneration
o Proportionality principle o “in a manner and to an extent is appropriate to their size, internal
organisation and the nature, scope and complexity of their activities.” (Art.92(2) / SYSC 19A.3.3)
o ‘Neutralisation’ o “…application of the proportionality principle may lead… to the
neutralization of some requirements…” Para 20. CEBS Guidelines on Remuneration December 2010
o CP: Original CEBS interpretation was incorrect
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Remuneration
o Risk alignment provisions o Payment of 50% of bonus in non-cash instruments
o Deferral
o Malus and Clawback
o Bonus Cap (CRD IV)
o FCA Proportionality guidelines – three levels o “The CRD can be interpreted such that it may not be necessary for certain
firms to apply certain remuneration principles at all.” – Para 28. FCA IFPRU Remuneration Guidance
o Level three firms - “It would be normally appropriate...to disapply [the risk
alignment rules]”. Para 29 FCA IFPRU Remuneration Guidance
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Remuneration
o Neutralisation of neutralisation o No explicit provision in CRD that allows neutralisation
o Flexibility to adapt the concrete manner and extent of application
o Rules provide a range for compliance but not dis-application
o EBA concern: some might not comply with the remuneration principles at all o “applied without exemptions and exceptions to all institutions”
o Despite: o “it would not be proportionate to require certain types of investment
firms to comply with all of these provisions” Recital 66 CRD IV
o Proportionality Principle (Art 92)
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Remuneration
o FCA proportionality guidance
o Level Three firms o in particular, staff whose total rem is > €500k
o BIPRU Firms and CPMIs that are in a Consolidation Group containing CRD IV firms
o BIPRU firms and CPMs unaffected – for now(!)
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Remuneration
o EBA acknowledges o "provide an estimate of the implementation costs in absolute and
relative terms and to point to impediments …”
o FCA statement strongly encouraging firms to respond
o Implementation by end 2015 – effective for performance year 2016
o Action: respond to CP (4 June 2015) o EBA consultation response form
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Valuation
o AIFMD obligation o proper and independent valuation of assets - Art. 19
o FCA Quarterly CP No.8 (CP15/8) – proposes new Q&A guidance
o Uncertainty regarding responsibility/liability
o Function to be performed by the AIFM or External Valuer
o Person making ‘final determination’ is performing the valuation function
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Valuation
o External valuation input is permitted o Price providers – provision of market data only
o Valuation advisors – function must not be bound by the advice received
o Right of override on an exceptional basis (Q1.3) o Exceptional basis undefined
o Valuation – ensuring functional independence o Is not engaged in front office activities
o Is not directly supervised by those responsible for front office (difficult in very small firms – operational independence)
o Is compensated in accordance with achievements of objectives linked to that function
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Valuation
o Portfolio management input
o Valuation function can take advice from PM … o when the function is not bound by the advice received
o makes reasonable efforts to verify the price recommended by the PM
o is itself competent to form an individual view
o Valuation Committee o participate in an advisory capacity only
o not exert undue influence on the final valuations; and
o not have a vote on the final asset values
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Valuation
o Valuation function values all assets
o AIFM has ultimate responsibility for valuation
o AIFM has responsibility for NAV but duty does not form part of the valuation function
o Valuation Policy should specify; o when the valuation function may seek the advice of PMs
o controls to ensure an appropriate degree of objectivity in finalising values
o review process for the individual values of assets (AIFMD Reg. Art. 71(2)(f))
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Valuation
o Actions:
o Appraise your businesses objectively - have the roles (of respective parties) changed in practice?
o Consider the role of PMS in the valuation process
o Update your policies to reflect the guidance
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IDENTIFYING THE KEY MESSAGES FROM THE FCA’S DISCUSSION PAPERS AND THEMATIC REVIEW ON MARKET ABUSE
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JONATHAN WILSON Project Director, EMEA
TR15/01 Asset management firms and the risk of market abuse
o What practical steps should fund managers be taking following the FCA’s thematic review of how asset management firms control the risk of committing market abuse?
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Key findings: TR 15/01
“firms had put in place some practices and procedures to control the risk of market abuse. However, these are only comprehensive in a small number of firms. ”
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“firms need to pay more attention to the possibility of receiving inside information through all aspects of the investment process and take steps to manage this risk ”
“Firms generally also need to improve the effectiveness of post-trade surveillance.”
Findings
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Review area
Receiving but not identifying
Controlling access
Pre-trade controls
Post-trade surveillance
Personal account dealing
Training
Receiving but not identifying
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“most firms did not have effective policies for when inside information is unintentionally received from (a sounding) when that wall crossing is not taken up.”
“practices to avoid the unnecessary receipt of inside information when conducting company-specific research …were typically informal and inconsistently applied.”
Controlling access
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“All firms had a policy to limit the sharing of inside information to those who need to know it. However, only a minority of firms monitored the effectiveness of this policy. ”
Pre-trade controls
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“In most firms a segregated dealing function conducted a review to flag potentially manipulative transactions prior to execution. All except two firms used a block or warning prompt to prevent trading of securities that had been restricted due to the possession of inside information.”
Post-trade surveillance
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“Only two firms … demonstrated (effective) post-trade surveillance … effective investigation of potentially suspicious transactions was difficult due to a lack of documentation.”
Personal account dealing
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“Three firms did not effectively manage the risk of a fund manager trading ahead of a fund.”
Training
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“face-to-face training …encouraged debate of real-life scenarios and a full understanding of how market abuse rules apply in practice.”
What should firms be doing?
o Ensure independence
o in the receipt and control of inside information
o in trade execution or approval
o Ensure the responsibility for managing market abuse operates firm-wide
o Automate pre-trade (and PA trade) controls
o Establish credible post trade surveillance processes
o Review the quality and effectiveness of market abuse training.
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Market Abuse Regulation (MAR)
o Insider dealing and unlawful disclosure: includes amends or cancels;
o Market manipulation: been extended to capture attempted manipulation e.g. algorithmic trading strategies which disrupt a trading venue.
o Market soundings: a framework for persons to make legitimate disclosures of inside information in the course of market soundings.
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And if you still need reminding….?
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Date Case Description Outcome
April
2015
Ryan Willmott Personal insider dealing 10 months imprisonment
April
2015
Deutsche Bank LIBOR and EURIBOR-related misconduct
and misleading the regulator
Fined £227m
March
2015
Kenneth
Carver
Friend of Ryan Willmott. Personal
insider dealing
Fined £35,212
March
2015
Julian Rifat Passed inside information to an
associate, who then traded for their
joint benefit
19 months imprisonment
Fined £100,000
Costs of £159,402
March
2015
Tariq Carrimjee Upper Tribunal judgement on FCA’s
response to the attempted market
manipulation of Gazprom GDRs
FCA ban;
Fined £89,004 for breaching Principle 1.
Court applied the fine to Principle 2
instead.
March
2015
Paul Coyle Former Group Treasurer and Head of Tax
at Morrison Supermarkets Plc pleaded
guilty to two counts of insider dealing.
12 months imprisonment
£15,000 costs
£203,234 confiscation order
Cordium
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