The UK is the world’s second largest hub for the PE/VC fund management industry. This position depends on the UK maintaining a robust tax, legal and regulatory environment that remains competitive and in-line with global standards on investor protection.
For this reason, the BVCA has been engaging with policymakers in various contexts to enhance UK competitiveness, particularly as the Government and regulators consider the post-Brexit evolution of UK asset management and the broader financial services industry. Our feedback below also forms part of regular budget submissions.
Engagement with the FCA on improving UK fund regulation
The BVCA maintains an ongoing dialogue with the FCA, including on the regulator’s commitment to modernise and improve the UK’s regulatory regime for funds. As part of this discussion, we have submitted recommendations to the FCA on enhancing the attractiveness of the UK as a place to establish a PE/VC firm, raise capital and invest. Our key recommendations include:
- increasing speed to market by reducing administrative burden and processing times for firms;
- making changes to the existing RVECA regime to make the UK a more competitive place for VC managers to establish funds and invest in early-stage UK businesses;
- addressing unintended consequences on PE/VC firms created by domestic and onshored regulations designed for listed securities and traditional asset managers;
- reducing regulatory reporting burdens on UK firms by eliminating those onshored from EU law where the resulting information and data is not useful to investors or the FCA; and
- ensuring the effectiveness of UK sustainability regulation through proportionality and compatibility with international frameworks. We have also recommended changes to the UK’s RVECA regime to make it easier for VC funds to invest in innovative growth businesses.
HM Treasury’s review of the UK funds regime
The BVCA responded to HM Treasury’s 2021 review of the UK’s funds regime. Our 20 detailed recommendations included a range of suggestions relating to tax issues, limited partnership law and the UK regulatory framework, and we remain in discussions with HM Treasury relating to many of these. The key overarching points were as follows:
- The UK limited partnership regime is the legal bedrock of the UK private funds industry, and the inspiration for numerous similar vehicles around the world. International investors are familiar with this regime and legal and tax enhancements to it can be implemented with relative ease, especially now that the UK is no longer bound by EU law. We reiterated the BVCA position that this is preferable to any entirely new regime for unauthorised fund structures. We also stressed the importance of an expeditious conclusion to the existing BEIS reform project and with only essential changes being made: stability and predictability in the existing regime is key, and the UK can still be a jurisdiction of choice for investors (particularly where an EU-based structure is not required). We also recommended the introduction of a clear and competitive UK Asset Holding Company regime to reinforce the UK’s position as a centre for co-location.
- The UK must remain a competitive location for asset managers and individuals to encourage capital to continue to be deployed in the UK and retain the country’s position as a global investment hub. The full benefits of recent HMT initiatives, such as the 2021 funds review and work on asset holding companies, will only be realised if asset managers base themselves in the UK as well.
- The UK regulatory regime must also facilitate PE/VC fund managers’ access to investors, transactions and talent, whilst providing appropriate protections to investors. An excellent example of this is the work underway to enable DC pension schemes to invest into illiquid asset classes. Competition and change mean that the future of UK financial services regulation must be dynamic, especially in respect of regulation related to sustainability matters.
Treasury Committee inquiry on the future of financial services
Parliament’s influential cross-party Treasury Committee spent much of 2021 gathering evidence from industry and policymakers for its inquiry on the future of financial services. The BVCA provided written evidence in February and our Director General Michael Moore appeared in person before the Committee to give oral evidence in December. The focus of this inquiry is on financial services regulation and the relationship between the UK’s regulators, HM Treasury and Parliament. The BVCA’s key points in this respect included:
- The UK should carefully monitor developing EU and international financial services rules, in particular AIFMD and MiFID, to ensure parallel UK regimes do not unnecessarily disadvantage UK firms by being inconsistent or more burdensome. Thinking about this also in the context of sustainability regulation, it is important that the UK does not diverge too far from international standards, including the EU’s, on disclosure rules, in particular in terms of the metrics required.
- The FCA requires more resources and the ability to streamline certain processes: The Government should not underestimate the impact on the UK’s competitiveness of improving operational efficiency at the FCA. International fund managers and investors rate potential jurisdictions on the ease of doing business, and speed and clarity in national regulators’ processes make a material difference to their decisions on where to locate their activities. Examples of this are change of control approvals for the acquisition of FCA-regulated companies and various notifications required under UK AIFMD.
- Distinguish alternative investment fund management from mainstream asset management where appropriate: We suggested a private capital unit to “join the dots” between government departments in relation to policy for alternatives. HMT has offered to perform this rule which is positive, but it is important that the voice of private capital is heard (i) early in policy development to avoid damaging application of disproportionate or ineffective rules designed for different business models (e.g. sustainability disclosures); and (ii) across government departments and the regulator, to prevent conflicting policy objectives in different parts of government.
Limited partnership law reform and AHC regime
Our working group remains engaged with government on the review of limited partnership law and the development of a new AHC regime that we highlighted in our response to HM Treasury’s funds review (see above). Further detail on the BVCA’s work in these areas is available here and here.
