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    Nov. 28, 2019

Five Essential Articles for European Hedge Fund Managers From the HFLR in 2019

In light of the Thanksgiving holiday in the U.S., this issue of the Hedge Fund Law Report features five articles from 2019 addressing legal issues relevant to European hedge fund managers. Next week (the week starting December 2, 2019), the HFLR will resume regular publication – that is, publication of new content focused on regulatory and related considerations applicable to hedge fund managers in the U.S., the U.K. and other jurisdictions.

Complying With the U.K. Senior Managers and Certification Regime

The U.K.’s Senior Managers and Certification Regime (SMCR) will apply to the financial services industry in its entirety on December 9, 2019. The SMCR introduces a heightened level of personal responsibility for senior managers, shifts the duty to certify control function staff onto regulated firms and establishes rules of conduct for all financial staff. An ACA Compliance Group (ACA) webinar – featuring Martin Lovick, ACA senior principal consultant; Josie Cooper, ACA consultant; and Dimitrios Sachinidis, ACA senior compliance analyst – provided a roadmap for navigating the transition to the SMCR. The first article in this two-part series summarizes the panelists’ insights on the genesis and extension of the SMCR, as well as the responsibilities of senior managers. The second article explores the firm-based certification of certain other personnel, the imposition of rules of conduct on virtually all firm employees and steps fund managers can take toward compliance. For more on the SMCR, see “FCA Issues Guidance on Expansion of Senior Managers Regime to Fund Managers and Others” (Feb. 1, 2018); and “Hedge Fund Legal Personnel May Fall Under U.K. Senior Managers Regime” (Feb. 4, 2016).

Implications for Investment Managers of the New E.U. Investment Firm Prudential Regime

Earlier this year, the European Parliament voted in its plenary session to adopt the text agreed by the European Commission, the European Parliament and the Council of the E.U. on a new legislative package revising the prudential framework for E.U. investment firms. Investment managers based in the E.U. will need to consider this new legislative package given its implications not only for the level of regulatory capital that those managers would be required to hold, but also for the restrictions on the ways in which those managers could pay their employees and the remuneration disclosures they would be required to make. In a guest article, Leonard Ng and Chris Poon, partner and senior associate, respectively, at Sidley Austin, explore the implications of the legislative overhaul of the prudential framework for E.U. investment firms, particularly with respect to E.U. investment managers. For coverage of the proposed overhaul of the prudential framework, see “What Are the Implications for Investment Managers of the Revised Prudential Framework for E.U. Investment Firms?” (Mar. 22, 2018).

How Managers Can Launch and Market UCITS Funds in the E.U. and Across the Globe

Funds launched under the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive are attractive vehicles for reaching both professional and retail investors in the E.U. and beyond. A program sponsored by Carne Group and RBC Investor & Treasury Services offered an in-depth look at the logistics of forming a UCITS fund, the marketing environment for UCITS funds, key investment restrictions and the potential impact of Brexit. The program featured David Giannone, managing director at RBC Investor & Treasury Services; Aymeric Lechartier and Nicola Cowman, managing director and director, respectively, at Carne Group; and Donnacha O’Connor, partner at Dillon Eustace. This article summarizes their insights. See “ESMA Opinion Sets Forth Four Common Principles for UCITS Share Classes” (Mar. 16, 2017); and “Are Alternative Investment Strategies Within the Spirit of UCITS?” (Jun. 8, 2012).

Practical Tax Considerations Arising From Trends in European Fund Structuring

A developing theme over recent years has been the extent to which current fund structures will continue to achieve the aim of minimizing tax leakage. This theme has largely emanated from coordinated action of the Organisation for Economic Co‑Operation and Development and E.U. member states to tackle and prevent perceived tax avoidance and treaty abuse. As a result, it is now important to carefully consider not only whether the economic substance of a fund structure can withstand scrutiny from a tax perspective, but also whether it will continue to minimize tax leakage in the future. In a guest article, Will Smith and Caleb McConnell, partner and associate, respectively, at Sidley Austin, address a number of the important changes to the international tax framework that have affected the tax planning involved in fund structuring. In addition, the authors provide practical points to consider for a European fund structure in light of these international tax changes. For analysis of other tax issues, see “France Welcomes Foreign Asset Managers With Softened Tax Treatment of Carried Interest” (Dec. 6, 2018); and “E.U. Publishes Blacklist and Grey List of Non-Cooperative Tax Jurisdictions: Funds Formed in Grey-Listed Bermuda, Cayman Islands, Guernsey, Jersey and Others May Be Affected by Potential Tax Law Revisions” (Jan. 11, 2018).

FCA Evaluates Firms’ Cyber Resilience

Cyber resilience is an important concern of the U.K. Financial Conduct Authority (FCA). In 2017 and 2018, at the request of the FCA, several hundred financial services firms completed a cross-sector self-assessment survey of their cyber resilience or technological resilience. At the same time, the FCA also conducted informal interviews with directors and senior managers of 20 asset management and wholesale banking firms. This article summarizes the key takeaways from the survey and its associated findings. See “FCA Head of Technology Outlines Regulator’s Cybersecurity Expectations and Three Key Lessons for Fund Managers” (Feb. 22, 2018). For a comparison of the FCA and SEC stances on cybersecurity, see our two-part series “Navigating FCA and SEC Cybersecurity Expectations”: Part One (Jan. 7, 2016); and Part Two (Jan. 14, 2016).

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