We see a lot of clients who really want to avoid having to prepare a prospectus.  Sometimes, I’m not sure all the effort is worthwhile and it may be better to take another look at the costs and time involved in putting a prospectus together if it makes the marketing easier – generally, it’s not as bad as you’d think.  Nonetheless, this article is about the exemptions, or rather about some of the imaginary exemptions we’ve heard of recently.  Our basic guide to the real exemptions can be found by clicking here.

“If working within the limit of 99 people, can’t Sophisticated Investors be excluded from the total?”

No.  It’s true that certain investors can be excluded but the only kind of private individuals who can be excluded are ‘Qualified Investors’.  These must be registered with the FSA and meeting the criteria  for sophistication is not helpful in meeting the requirements to be qualified investors (which are much closer to the criteria for an elective professional investor under MiFID).

“If relying on the minimum investment of €50k, is it OK to quote this in the literature but actually accept less than this?”

Again, no.  Generally speaking, saying one thing and doing another is a recipe for upsetting investors and getting sued.  Apart from this, the relevant rule states that “a person does not contravene section 85(1) if… the minimum consideration which may be paid by any person for transferable securities acquired by him pursuant to the offer is at least 50,000 euros”.  I suppose if you have a really good lawyer, you could get into a debate about the meanings of “may” and “pursuant” but I think we all know what the rule intends and I wouldn’t want one of my clients to be in the dock while the case law is being made. 

“Is it true that the prospectus rules don’t apply to funds which are unregulated collective investment schemes?”

Sorry, yet again, no.  The rules apply to most ‘transferable securities’ including shares in companies and units in partnerships (how most funds are structured).  It is true that there is a list of exempt investment types and that this list includes open ended funds but most smaller, unlisted or unregulated funds won’t qualify as open ended (even if they think they do).  They can, however, use one of the other exemptions.  It is worth noting that any fund listed on the LSE’s Specialist Fund Market must prepare a prospectus even if it otherwise falls into one of the exemptions.

With experience of the prospectus directive within both corporate finance and fund establishment, StypersonPOPE can help you plan which exemptions to use. For an initial discussion, please call or e-mail Simon Webber, StypersonPOPE’s Managing Director.

This isn’t a particularly original or insightful page because it’s basically just a cut and paste from the FSA’s handbook but the principles are very imoprtant to the FSA and they should be to all authorised firms as well.  They bear repeating:

FOR BUSINESSES…

1 Integrity – A firm must conduct its business with integrity.

2 Skill, care and diligence - A firm must conduct its business with due skill, care and diligence.

3 Management and control - A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

4 Financial prudence – A firm must maintain adequate financial resources.

5 Market conduct – A firm must observe proper standards of market conduct.

6 Customers’ interests - A firm must pay due regard to the interests of its customers and treat them fairly.

7 Communications with clients - A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.

8 Conflicts of interest - A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.

9 Customers: relationships of trust – A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.

10 Clients’ assets – A firm must arrange adequate protection for clients’ assets when it is responsible for them.

11 Relations with regulators - A firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.

FOR APPROVED PERSONS…

1. An approved person must act with integrity in carrying out his controlled function.
2. An approved person must act with due skill, care and diligence in carrying out his controlled function.
3. An approved person must observe proper standards of market conduct in carrying out his controlled function.
4. An approved person must deal with the FSA and with other regulators in an open and cooperative way and must disclose appropriately any information of which the FSA would reasonably expect notice.
5. An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively. 
6. An approved person performing a significant influence function must exercise due skill, care and diligence in managing the business of the firm for which he is responsible in his controlled function.
7. An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the relevant requirements and standards of the regulatory system. 

(For 5-7 above, a “significant influence function”, includes Directors, Compliance Officers, and Money Laundering Reporting Officers, but not people in only a customer function.)

If you would like help in determining how these principles can be applied in practice, within your business, please do call or e-mail Simon Webber, StypersonPOPE’s MD.

As is so often the case with regulation, it’s almost impossible to get an answer to a simple question like this without ending up being barraged by unhelpful and unfamiliar technical terms.  With respect to investment firms like our clients, the answer is easy:

“If, in the course of business, you carry out designated investment business with respect to specified investments and the activity isn’t excluded, or you’re not exempt, you need to be authorised.” 

But really, what use is that?!

The rules genuinely are detailed and complicated, and the terminology is technical so this can’t be a full guide but we can unpack the ’easy answer’ above, separate out the different concepts and give a quick introduction to them so that you know what questions to ask next…

1) in the course of business
This part of the answer is not clearly defined by law but most people know whether they are doing something in the course of business or not.  If it could make you money (whether or not it actually does) and if it’s a regular activity rather than a one-off happening, it’s likely to fall within “the course of business”.

2) designated investment business
This is just a part of the much wider “regulated activities” which range from insurance business to banking but these are the ones undertaken by most investment firms.  These include (among others):

• arranging investments,
• advising on investments,
• operating a collective investment scheme,
• managing investments (eg in an EIS fund).

Again, common sense applies; if it feels like it should be regulated, it probably is.

3) specified investments
These are the investment instruments that are regulated.  This category includes shares, options, warrants, debentures, units in a collective investment scheme (fund), government securities, &c..

There are several popular alternative asset classes that aren’t specified investments, most notably property (real estate) but also art, wine, stamps, antiques, and the like.  You do not, therefore, need to be regulated in order to advise someone on their portfolio of wines. 

Even within these asset classes, some caution is required; because units and shares are specified investments, advising somebody to buy into an art fund, or to buy a special purpose vehicle which owns a building, is likely to be regulated.

4) excluded activity
These are activites which, were it not for the specific exemption, would require you to be authorised.  They include publishing media reports on financial matters, setting up employee share schemes, and buying or selling investments on your own behalf (as long as you don’t hold yourself out to the market as willing to do so).

5) exempt persons
Finally, these are people who have specific exemptions from requiring FSA authorisation because of who they are.  These include regulated professional firms (mainly lawyers and accountants, where the activity is incidental to the professional services they offer), appointed representatives, central banks, and certain large investment exchanges.  If you were going to fall into this category, you’d probably know already.

If you’re not sure whether you need to be authorised, it’s likely to be because you’re not sure if the activity you’re undertaking counts as ’regulated activity’ or if you’re involved with ’specified investments’ (2 & 3 above).  These are the key areas where you may want to seek more advice.

Of course, if you’d like to discuss with us, whether or not you need regulation, please contact Simon Webber, StypersonPOPE’s MD, either by telephone or on sw@strategic-compliance.co.uk.

Writing and approving financial promotions is an extremely important part of any authorised firm’s work, whether they contain information on clients or on the firm’s own services. The FSA lay down detailed rules about financial promotions, the most far reaching of which is that these documents must be “clear, fair and not misleading”.

The quality and accuracy of information contained in financial promotions is a key part of the commitment every firm must make to “treating customers fairly”. Creating this ‘firm-wide culture’ remains an important focus for the FSA.

Unregulated Collective Investment Schemes
Often, Operators of unregulated collective investment schemes will bolt on their standard regulatory wording (sometimes making the mistake of thinking this acts as a ‘disclaimer’) but it is just as important to ensure that the document as a whole contains the relevant details, presented in the right way and that the process of verification has been appropriately thorough,

This is the weak point for many Operators because it is their responsibility as an authorised firm and if a scheme fails to perform in the way the information memorandum or promotional flyers suggest it will, it is these financial promotions that investors (and their litigiously-minded lawyers) will turn to first.

Corporate Finance
For company fundraisings, documents tend to be less focussed on future performance but to have more information on a company’s track record and the attributes of the current management, product and market. These statements of fact must be examined carefully and whilst firms might want to ask companies to warrant the accuracy of the information the provide or indemnify the firm against the effects of misleading information being given, firms must not use these to replace a critical examination and verification of the information they are providing to potential investors.

Unauthorised Firms
There are a number of unauthorised firms operating within exemptions to the regulated activity order and this means that the FSA’s rules on the preparation of financial promotions do not apply to them (although, of course, the laws and orders regarding the communication of financial promotions still do). These firms must consider the common law implications of giving misleading information which have much the same effect as the higher-level rules from the FSA.

Verifying Financial Promotions
If your firm’s name appears on the document, don’t think that a general disclaimer of responsibility is going to protect you from the consequences of inaccurate information or an inadequate process of verification. Of course, firms can only go so far and it is impossible to be absolutely certain that every thought within the IM (which will often be an opinion or a forecast) is accurate. Firms must however take all the steps they reasonably can to substantiate the material facts, ensure that the opinions are honestly held, and check that the forecasts are not misleading. 

Should the worst come to the worst, it is the robustness and thoroughness of this verification process which will protect the firm and its Directors from litigation.

StypersonPOPE has considerable experience of preparing, examining and challenging financial promotions (and, unfortunately, in examining promotions made by others which are coming under attack from lawyers). If you would like to discuss the preparation or verification of financial promotions, please call or e-mail Simon Webber, StypersonPOPE’s Managing Director.

The Prospectus Directive is EU legislation requiring companies and funds structured as unregulated collective investment schemes to prepare a prospectus when they offer transferable securities to the public (raise money!). Within the UK, the prospectus directive has been made law through certain sections of the Financial Services & Markets Act, through Treasury Orders, and through the FSA’s ‘Prospectus Rules’. These lay out the circumstances in which a prospectus is needed and also define what it must contain.

The advantage of preparing a prospectus is that it can be used across European countries with relatively few alterations. The disadvantages are that it is time consuming and expensive to create a prospectus, it is likely to involve professional advisors, and it must be approved by the FSA. For most smaller companies and funds looking to raise money, a full prospectus is an unnecessary complication. For this reason, there are various exemptions to the prospectus rules and so the requirement to prepare a prospectus does not apply to (among other things):

1. “open-ended” funds;
2. funds or companies raising less than €2,500,000 or equivalent;
3. funds or companies using a minimum total consideration per investor of €50,000; or
4. funds or companies issuing fewer than 100 offers (per EEA member state)

Less than €2,500,000
If the fundraising is for less than €2.5m, it is exempt from the requirement to prepare a prospectus, however the fundraising total must include any other amounts raised in the preceeding 12 months. For example, if a fund or company is looking to raise €2m having raised €1m six months earlier, it is unlikely that they can rely on this exemption.

Minimum Investment of €50k
If the fund or company will not accept an investment of less than €50k from any investor, it is exempt from the requirement to prepare a prospectus. It will be necessary to ensure that this lower limit is not breached because that would mean that the entire fundraising would become subject to the prospectus rules and the issuer of the security, along with the person who makes the offer on their behalf will be responsible for providing a satisfactory prospectus.

Restricted to fewer than 100 offers
If fewer than 100 potential investors receive an offer, the fund or company is exempt from the requirement to prepare a prospectus. It is not relevant from whom the approach comes, whether directly from the company or through any other route and it is the total number of end recipients which must be counted.

Investors can be excluded from the total if, at the time of the approach, they were a Qualified Investor registered with the FSA, an authorised person, or a High Net Worth Company (as defined by the FSA and EU rules).

Other Vehicles
It should be noted that the the Prospectus Rules apply to closed-ended funds and certain other vehicles like partnerships and companies. If another vehicle is used, different rules may apply. For instance, a open-ended fund is likely to fall outside the Prospectus Directive but will still be governed by the rules applying to Unregulated Collective Investment Schemes, Financial Promotions and Regulated Activity.

With experience of the prospectus directive within both corporate finance and fund establishment, StypersonPOPE can help you plan which exemptions to use. For an initial discussion, please call or e-mail Simon Webber, StypersonPOPE’s Managing Director.

I can’t tell you what it is about Manchester which captures the soul; it could be the city’s history of patrons (Hallé, Whitworth, Rylands, Chetham), it could be its more recent contribution to creative culture (from Morrisey to Mr Scruff), it could be the grandeur of its 19th century architecture, the modesty of its residents, it could be the heights of its aspirations, or its central ethic that values skill and effort over the lazy Pop Idol celebrity which now masquerades as success.  It could be that in business, in communities, in pubs and clubs, people talk to each other, they help each other out, people do what they say they will, they get on with making change without making fuss, they build on each other’s successes, and sometimes (just sometimes) they show the love.

Simon Webber, StypersonPOPE’s MD, is honoured to be a Board member of The Community Foundation for Greater Manchester.  CFGM gives over £5m a year to strengthen communities and improve lives around the city but its reach is much more important than its size.  It supports projects which no one else would ever even hear about, it takes risks from which others funders would shy away, it backs groups and individuals who are prepared to stand up and be counted for the sake of their communities, and it makes our little corner of the world a little better every day.

Now CFGM has launched the Infinity Fund and its Forever Manchester campaign to create a permanent endowment to the benefit of the city.  Government support (the right kind of government support) doubles every penny the fund receives and the addition of giftaid means that when you or I give £100, the fund receives £256.

StypersonPOPE will invest 10% of all the income we receive from clients in Greater Manchester, in the fund which will be investing in Manchester forever.  Care to join us?

“Manchester, as Mancs love to tell you, has been ahead of the game. Perhaps it’ll be the first place to show us whether our new cities work.”
Jim McClellan // Esquire Magazine

Forever Manchester online
Forever Manchester on Facebook
Forever Manchester on Twitter

Client categorisation is an area where many people (including FSA authorised firms) are still confused.  To be fair to them, it has changed a few times and there are several complications and clashing concepts. 

For instance, it’s common to confuse concepts like ‘High Net Worth Individual‘ and ‘Sophisticated Investor‘ with client categorisation as retail, professional or eligible counterparty.  In fact they are nothing to do with one another – many investors are both High Net Worth and Sophisticated but still retail investors.

Client categorisation is particularly important when an authorised firm does not have the permissions to deal with retail investors.  If client categorisation isn’t handled properly, the firm can end up on the wrong side of the law.

All authorised firms must categorise their clients, so to start at the beginning; who is the client?  A client is any person to whom the firm provides, or may potentially provide,  a service in the course of carrying out a regulated activity.  Even if services aren’t provided to them, a person to whom a firm communicates, or for whom a firm approves, a financial promotion is also a client (but a different kind of client and slightly different rules apply).

How a client is initially categorised depends on what sort of entity they are.  Starting at the top and working down…

Eligible counterparties include investment firms, insurance companies, authorised collective investment schemes, pension funds, governments, central banks and supranational institutions (like the World Bank and IMF). 

Professional clients include many of these same entities because eligible counterparties are only counted as such in respect of eligible counterparty business, the rest of the time, they are professional clients.  This category also includes large businesses (how large depends on the services provided), trusts with asssets of more than €10m, and pension funds with more than 50 members.

Retail clients are everybody else – most SMEs and all individuals will be retail clients.

However, a retail client can ask to be treated as an ‘elective’ professional client.  This means that they will be less well protected by the FSA’s rules and so authorised firms are required to ensure that such people qualify to make the change.  The criteria for that qualification again depend on what kind of service is being provided.

For non-MiFID business,  the firm must assess the expertise, experience and knowledge of the client to ensure that they are capable of making investment decisions and understanding the risks involved.  Firms must have in place procedures and training to ensure such an assessment is adequate and must keep appropriate records.  There must also be an exchange of correspondence between the client and the firm in order to effect the change.

For MiFID business, as well as the above, the client must be able to satisfy two of the following quantitative tests:

• they have carried out an average of 40 significant transactions on the relevant market in the last year;
• they have a cash and financial instrument portfolio of over €500,000;
• they have worked in the financial sector for at least one year in a professional position which requires knowledge of the transactions or services envisaged.

For many types of regulated activity, the first of these quantitative tests is highly unlikely to be met by even the most active investor.  If so, for an authorised firm carrying out MiFID business that does not have permission to take on retail clients, the only individuals they can work with are essentially financial services professionals with portfolios over €500,000… and there just aren’t as many hedge fund managers as there once were!

Retail clients who choose to recategorise as professional always have the right to return to being retail clients.  Indeed, all professional clients and eligible counterparties have the right to downgrade their categorisations and increase their potections.

As well as in relation to the provision of regulated services, client categorisation is important to financial promotions where communications which are likely to be received by retail clients must meet higher standards than others.   If a promotion is approved so that it can be circulated by unauthorised firms, the approval must be limited to the client categories for which it is written.  It is an offence under FSMA for a communication approved for professional clients to be distributed to retail clients.

If you are at all unclear about client categorisation, StypersonPOPEcan prepare a clear and straightforward procedure for you to follow.  Please contact Simon Webber for an initial discussion on 07710 260 717 or sw@strategic-compliance.co.uk.   

The Financial Services and Markets Act (FSMA) imposes a restriction on unregulated collective investment schemes (UCIS) being marketed to the public but it also creates three sets of exemptions, each of which has its advantages and disadvantages…

1. The Financial Promotions Order defines how an unauthorised firm can promote a UCIS using unapproved documents.  Essentially, it allows promotion to some institutional investors and to Certified Sophisticated Investors (and, depending on the scheme’s investments, also to self-certified high net worth or sophisticated investors).

Advantages to this approach are that:

• Fees tend to be lower because,
  • the document used does not need to meet the FSA’s requirements for financial promotions, and
  • no FSA authorised firm has to take responsibility for the document.

Disadvantages are that:

• an unauthorised (and therefore probably less expert firm) takes all of the responsibility,
• the documents do still need to meet certain FSMA and common law requirements,
• schemes can only be promoted to institutional and certified sophisticated investors,
• the person making the communication has to establish that the investor is certified before making any promotion, and
• authorised firms (eg IFAs) may not be able to pass on the promotion.

2. The Promotion of Collective Investment Scheme (Exemptions) Order contains one of the sets of exemptions to Section 238 of FSMA which restricts how an authorised firm can promote a UCIS. The exemptions here are very similar (but not identical) to those under the Financial Promotions Order (above).
 

Advantages are that:

• an authorised firm is involved, giving comfort to partners in the fund by taking on some of the responsibility;

• investors will feel more comforted knowing that a UK-based, FSA-authorised body is involved in the communication; and

• the document does not have to meet the full requirements of the FSA’s financial promotion rules;

• an authorised firm can approve the promotion to be made by unauthorised persons (but there’s little point because the promotion would be limited to the same people that the unauthorised person could promote it to anyway under the Financial Promotions Order).

 Disadvantages are that:

•  fees will be higher because the firm will have to ‘verify’ the contents of the promotional material – they have a responsibility to investors to ensure that it is fair clear and not misleading;

• schemes can still only be promoted to institutions and certified sophisticated investors;

• the person making the communication still has to establish that the investor is certified before making any promotion; and

• even some authorised firms (eg IFAs) can not pass on the promotion – eg if it would constitute MiFID business for them.

3. The FSA’s rules provide the final route for promotion. These define eight categories of investor to whom a scheme can be promoted without breaching the restriction in FSMA. Some of these are very specific exemptions for unusual types of schemes (like Church Funds and Lloyds underwriters) but two in particular are of more use.
 

Advantages of utilising these rules are that:

• the UCIS can be promoted to other groups of investors, including

  • persons assessed as suitable by an authorised firm (probably their IFA),

  • persons who have undergone an adequate assessment of their knowledge, experience and expertise by an authorised firm;

• the scheme can be promoted in such a way as to reduce as far as possible the risk of someone making an investment who does not fit an exemption (this will mean controlling the promotion, dissuading ineligible persons from applying, and checking that applicants are eligible but unlike the other routes above, this does not need to be done ahead of making initial contact with an investor);

• an authorised firm will take responsibility for the document; and

• an authorised firm can approve the document for distribution by unauthorised persons.

Disadvantages of this approach are that:

• the document will need to be more thorough, meeting all of the FSA’s requirements for financial promotions;

• fees will be higher because the document will need to be verified by the authorised firm; and

• an authorised firm will need to have processes and procedures in place to ensure that ineligible applicants are not permitted to participate in the scheme.

As you can see, each approach has its ‘pros and cons’ and each route is therefore suitable for certain types of schemes.

Routes 1 and 2 are most suitable for an institutional UCIS (ie funds where all of the investors are investment professionals, authorised firms, or high net worth companies and unincorporated associations).

If you are thinking of pursuing either of these routes and the fund is looking for investment from individuals then make sure that you or your distribution network already know a good number of Certified Sophisticated Investors (be careful to ask the right question and get the right answer because Self-Certified Sophisticated Investors, probably won’t count and certificates that do not cover units in a UCIS are useless to you).

If in any doubt, we recommend that you pick a sample of your target audience, say 20 investors, and (without telling them anything about the fund), ask them if they have a certificate and if they do, to fax it over to you. We can take a quick look at these and make sure that they are the right kind. Once you know what percentage of your target audience has these certificates then you’ll know how restricted you’ll be in promoting your fund.

Route 3 is likely to be more expensive because the authorised firm (probably the operator of the scheme) is going to be more involved – they will verify the document (as indeed they will for route 2 and you will for route 1), they will ensure it meets the FSA’s higher standards, they will approve it for distribution by you, and they will have in place process and procedures designed to stop ineligible investors from participating.

On the other hand, this route will allow more effective promotion of the scheme on the basis that investors will be protected by the assessments carried out by authorised firms (be they the operator or an IFA). If you want to promote the scheme to individuals who don’t already hold a Certificate of Sophistication covering unregulated collective investment schemes, these protections will need to be in place.

Above, I said the fact that “the document will need to be more thorough, meeting all of the FSA’s requirements for financial promotions” was a disadvantage. It might equally be seen as an advantage, both for the investor, who is better informed and therefore better protected, and for the promoter who can draw the attention of their distribution network to the involvement of an authorised firm.

StypersonPOPE can help you to determine the most effective route to employ in promoting a scheme. If you would like to discuss scheme promotion, please do contact Simon Webber, StypersonPOPE’s Managing Director, either by telephone or e-mail.
 

What is an EIS fund?
The short answer is that it’s an arrangement through which less experienced and time-poor investors can put money into Enterprise Investment Scheme qualifying unquoted companies. This offers investors diversification in their portfolios and the higher level of risk is mitigated (to an extent) by the income and capital gains tax reliefs. (See the HMRC site for more detail on Enterprise Investment Scheme tax advantages and qualifying investments.)

When looking at the tax reliefs, there are two types of EIS fund; approved and unapproved.  These are not regulatory terms but refer to whether the fund has been approved by HMRC.  If it has, the investors qualify for relief when they invest in the fund, if it is not, they only qualify for relief when the fund makes an eligible investment.  The predictability of the former makes it attractive to some investors but they are less flexible than unapproved funds and have a limited time in which to make their investments.

When it comes to the structure of the fund it gets more complicated. Firstly it isn’t really a ‘fund’ at all. Unlike companies and other kinds of funds (which are usually partnerships) it doesn’t have a legal personality. It can be a number of parallel investment management agreements between individual investors and the manager of the ‘fund’ or a series of separate portfolios which together are referred to as the ‘fund’.

Typically, the initial investment is kept in cash as ‘client money’ either with the scheme manager, in a client account, or on trust with a bank. The investment manager will then commit a portion of each investor’s cash into each investment in a qualifying company (in line with the investment management agreement). Often the resulting shares will be registered in the name of a nominee and shareholder duties (like voting) will be delegated to the investment manager during the life of the fund.

If that sounds rather like a collective investment scheme, we can understand why.  However, the Treasury have the power under FSMA to create exemptions to the definition of a collective investment scheme and they have created one specific to EIS funds.

A Compliance Perspective
From this point of view as well, EIS funds are strange animals. The fact that an EIS fund is not a collective investment scheme (CIS) has its advantages and disadvantages. On the one hand, they do not require an operator in the same way as a CIS, the scheme documents are not as prescribed, and the promotion is not as restricted (at least for an authorised firm). On the other hand, unlike a CIS, it is ‘MiFID business’ which means that firms managing an EIS fund will need to follow rules from which CIS operators are exempt. It also means that unlike a CIS, it is virtually impossible to run an EIS fund without the permission to deal with retail clients.

Retail client permissions are necessary because it is the underlying investor, not the fund which is the client of the firm. Within the MiFID rules under which EIS funds are regulated, it is much harder to categorise an investor as professional. You may find that if retail investors are excluded, it seriously limits the market for the fund.

The regulated activities involved in managing an EIS fund include holding client money, investment management, and safeguarding and administering investments. Firms should also consider whether any particular investment management agrement is likely to involve them in arranging, advising, or dealing in investments.  It is possible for firms to outsource some of these activities if they do not have the required permissions to carry them out themselves.

Simon Webber, StypersonPOPE’s Managing Director has experience of both investment management and unquoted corporate finance compliance. If you would like to discuss any aspect of establishing or managing an Enterprise Investment Scheme fund, please contact him directly on 07710 260 717 or sw@strategic-compliance.co.uk.

This isn’t intended to be comprehensive (if it was, it would be better written by a lawyer and a tax accountant) but it hopefully introduces some of the terminology for those who are unfamiliar. Most links lead to Wikipedia articles which open in a new window.

Partnerships
Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs) are popular UK structures for funds because they are ‘tax transparent’, meaning that they will pay no tax themselves and each of the investors (partners) will be responsible for their own tax. This is particularly attractive to investors who don’t pay UK tax – this applies to SIPP and SSAS pension trusts and investors based outside the UK.

Limited Partners / General Partners / Designated Members
There is likely to be a mix of passive and active members. Investors will be passive (Limited Partners) but the people running the fund will be active (a General Partner in an LP, or at least two Designated Members in an LLP). These active partners may also be called the ‘Sponsor’ and will be responsible for the running of the fund which may include calling investor meetings, paying the partnerships’ bills, making investment decisions, or agreeing contracts to outsource these and other duties. Typically, this role is played by an existing company or a special purpose vehicle (SPV) run by whoever initiates the fund – the people with the bright idea!

If all of the investors are in day-to-day control of their property (their investment) then the fund may be a ’syndicate’ (and not really a fund at all) but these are extremely difficult to design and manage for more than a small handful of investors. If any investor is not in day-to-day control of their property it is likely that the fund will constitute a Collective Investment Scheme under UK law. As this is the case for the vast majority of funds, lets assume it’s the case here…

Operator
Any person setting up or operating a fund run from the UK (even where the partnership is established off shore but actually managed by people based in the UK), must be authorised by the FSA to establish, operate and wind up a collective investment scheme. If the people behind the fund are not already an authorised person with the appropriate permissions, then it’s likely that they will require the services of an ‘operator’. The operator will ensure compliance with regulatory requirements, will ensure appropriate information is provided to investors, and can play an important role in aiding the promotion the fund (there’s more detail on this last point, in our article “Three Routes To Promote a Collective Investment Scheme”).

Companies
Some people thinking about establishing a fund, consider structuring it as a limited company in order to avoid the need for an operator (incorporated bodies are excluded from the definition of a collective investment scheme) but this is unlikely to be attractive if the fund is larger than about £1m because the cost of an operator will probably be less than the amount of corporation tax that the fund would pay. The FSA also places restrictions on the way in which a company’s shares can be sold to investors which, although different, are no less onerous than those on collective investment scheme units.

Feeder Funds & EPUTS
There are a variety of reasons why feeder funds may used but the most common are to provide:

• a UK entity through which UK investors can put money into offshore funds;
• an offshore entity through which non-UK investors can invest in UK funds; or
• an EPUT through which UK capital gains tax exempt investors can invest. 

The reasons for establishing such a fund are usually driven by tax advantages such as ensuring that the upside of investments is taxed as a capital gain rather than income or ensuring that capital gains tax exempt investors, such as SIPP and SSAS pension schemes, do not pay tax at all. ‘EPUT’ stands for Exempt Property Unit Trust and, like other feeder funds, will usually be one of the Limited Partners in the underlying fund. If run from the UK, it is likely that the feeder fund will also be a Collective Investment Scheme and will therefore require an authorised operator.

Unregulated vs. Authorised
This is where the terminology begins to get confusing. All Collective Investment Schemes run from the UK, require the involvement of an authorised operator or manager however, within this, there are two types of scheme; unregulated and authorised. These terms refer to the scheme itself (not the operator). ‘Unregulated’ can also be misleading because they are heavily regulated and very restricted in how they can be promoted.

Authorised funds must apply to the FSA for their authorisation and this can be very costly (for most funds, it is prohibitively so) and can take up to six months from application to authorisation. In addition, authorised funds need to follow rules allowing investors to leave the fund which can make it difficult for such schemes to invest in illiquid ‘alternative assets’ like property, art, wine, films, and shares in unquoted companies. For these reasons, most funds are structured as unregulated collective investment schemes.

StypersonPOPE specialises in assisting anyone involved in establishing or running unregulated collective investment schemes whether as General Partner, Sponsor, or Operator. If you would like to know more about our services, please contact Simon Webber, StypersonPOPE’s MD, on 07710 260 717 or sw@strategic-compliance.co.uk.

Some communications about financial services are restricted to ‘certified’ investors. The differences between the certificates are subtle but vital to understand. For instance, just taking sophisticated investors, there are three different types of certificate depending on what the promotion is about and who is making it – it’s possible that a single investor might hold all three and yet still not count as a ‘Certified Sophisticated Investor’ in respect of any particular investment.

Financial Promotions Order Certificates include:

• Certified Sopisticated*

• Self-certified Sophisticated**

• Self-certified High Net Worth**

* Only in respect of the investments the certificate lists
** Only in respect of debentures and shares in unlisted securities

Promotion of Collective Investment Scheme (Exemptions) Order Certificates include:

• Certified Sopisticated*

• Self-certified Sophisticated**

• Self-certified High Net Worth** 

* Only if the listed investments include ‘units in a collective investment scheme’
** Only in respect of schemes investing in debentures or shares in unlisted securities.

When relying on certificates, the promoter must ensure that the investor holds the relevant certificate before making any promotion. We recommend that they see a copy of the certificate either by post, fax or scan. This can be difficult in practice but it is the only route available to firms under these regimes.

To establish whether your target audience is likely to have the required certificates, we recommend that you pick a sample, say 20 investors, and (without telling them anything about the investment), ask them if they have a certificate and if they do, to fax it over to you.

StypersonPOPE can take a quick look at the certificates you receive and determine which ones you can rely on.

Once you know what percentage of your target audience has these certificates then you’ll know how restricted you’ll be in promoting your fund. If it proves to be unworkable, there are alternative routes available but they will likely require more involvement by an authorised firm.

In any case, StypersonPOPE can help you to determine which certificates are appropriate and what percentage of your target audience holds them. If you would like to discuss scheme promotion, please do contact Simon Webber, StypersonPOPE’s Managing Director, either by telephone or e-mail.

The Financial Services and Markets Act (FSMA) imposes a restriction on unregulated collective investment schemes being marketed to the public but it also creates three sets of exemptions, each of which has its advantages and disadvantages…

1. The Financial Promotions Order defines how an unauthorised firm can promote a scheme using unapproved documents.  Essentially, it allows promotion to some institutional investors and to Certified Sophisticated Investors (and, depending on the scheme’s investments, occasionally to self-certified high net worth or sophisticated investors).

Advantages to this approach are that:

• Fees tend to be lower because,
  • the document used does not need to meet the FSA’s requirements for financial promotions, and
  • no FSA authorised firm has to take responsibility for the document.

Disadvantages are that:

• an unauthorised (and therefore probably less expert firm) takes all of the responsibility,
• the documents do still need to meet certain FSMA and common law requirements,
• schemes can only be promoted to institutional and certified sophisticated investors,
• the person making the communication has to establish that the investor is certified before making any promotion, and
• authorised firms (eg IFAs) may not be able to pass on the promotion.

2. The Promotion of Collective Investment Scheme (Exemptions) Order contains one of the sets of exemptions to Section 238 of FSMA which restricts how an authorised firm can promote a Collective Investment Scheme. The exemptions here are very similar (but not identical) to those under the Financial Promotions Order (above).
 

Advantages are that:

• an authorised firm is involved, giving comfort to partners in the fund by taking on some of the responsibility;

• investors will feel more comforted knowing that a UK-based, FSA-authorised body is involved in the communication; and

• the document does not have to meet the full requirements of the FSA’s financial promotion rules;

• an authorised firm can approve the promotion to be made by unauthorised persons (but there’s little point because the promotion would be limited to the same people the unauthorised person cold promote it to anyway under the Financial Promotions Order).

 Disadvantages are that:

•  fees will be higher because the firm will have to ‘verify’ the contents of the promotional material – they have a responsibility to investors to ensure that it is fair clear and not misleading;

• schemes can still only be promoted to institutions and certified sophisticated investors;

• the person making the communication still has to establish that the investor is certified before making any promotion; and

• even some authorised firms (eg IFAs) can not pass on the promotion – eg if it would constitute MiFID business for them.

3. The FSA’s rules provide the final route for promotion. These define eight categories of investor to whom a scheme can be promoted without breaching the restriction in FSMA. Some of these are very specific exemptions for unusual types of schemes (like Church Funds and Lloyds underwriters) but two in particular are of more use.
 

Advantages of utilising these rules are that:

• the scheme can be promoted to other groups of investors, including

  • persons assessed as suitable by an authorised firm (probably their IFA),

  • persons who have undergone an adequate assessment of their knowledge, experience and expertise by an authorised firm;

• the scheme can be promoted in such a way as to reduce as far as possible the risk of someone making an investment who does not fit an exemption (this will mean controlling the promotion, dissuading ineligible persons from applying, and checking that applicants are eligible but unlike the other routes above, this does not need to be done ahead of making initial contact with an investor);

• an authorised firm will take responsibility for the document; and

• an authorised firm can approve the document for distribution by unauthorised persons.

Disadvantages of this approach are that:

• the document will need to be more thorough, meeting all of the FSA’s requirements for financial promotions;

• fees will be higher because the document will need to be verified by the authorised firm; and

• an authorised firm will need to have processes and procedures in place to ensure that ineligible applicants are not permitted to participate in the scheme.

As you can see, each approach has its ‘pros and cons’ and each route is therefore suitable for certain types of schemes.

Routes 1 and 2 are most suitable for institutional schemes (ie funds where all of the investors are investment professionals, authorised firms, or high net worth companies and unincorporated associations).

If you are thinking of pursuing either of these routes and the fund is looking for investment from individuals then make sure that you or your distribution network already know a good number of Certified Sophisticated Investors (be careful to ask the right question and get the right answer because Self-Certified Sophisticated Investors, probably won’t count and certificates that do not cover unregulated collective investment schemes are useless to you).

If in any doubt, we recommend that you pick a sample of your target audience, say 20 investors, and (without telling them anything about the fund), ask them if they have a certificate and if they do, to fax it over to you. We can take a quick look at these and make sure that they are the right kind. Once you know what percentage of your target audience has these certificates then you’ll know how restricted you’ll be in promoting your fund.

Route 3 is likely to be more expensive because the authorised firm (probably the operator of the scheme) is going to be more involved – they will verify the document (as indeed they will for route 2 and you will for route 1), they will ensure it meets the FSA’s higher standards, they will approve it for distribution by you, and they will have in place process and procedures designed to stop ineligible investors from participating.

On the other hand, this route will allow more effective promotion of the scheme on the basis that investors will be protected by the assessments carried out by authorised firms (be they the operator or an IFA). If you want to promote the scheme to individuals who don’t already hold a Certificate of Sophistication covering unregulated collective investment schemes, these protections will need to be in place.

Above, I said the fact that “the document will need to be more thorough, meeting all of the FSA’s requirements for financial promotions” was a disadvantage. It might equally be seen as an advantage, both for the investor, who is better informed and therefore better protected, and for the promoter who can draw the attention of their distribution network to the involvement of an authorised firm.

StypersonPOPE can help you to determine the most effective route to employ in promoting a scheme. If you would like to discuss scheme promotion, please do contact Simon Webber, StypersonPOPE’s Managing Director, either by telephone or e-mail.
 

These terms of business govern the services which StypersonPOPE will provide to you as laid out in the accompanying letter of engagement.

Information about each other
In the course of providing services to you, we may become privy to sensitive or confidential information about you, your business or the business of your clients which is not available in the public domain.  Except where required to disclose such information by a competent authority, we will keep such information confidential. 

We may wish to disclose that we have provided services to you and in doing so, we may identify you by name.  Where we do this, we will limit any disclosure to a general indication of the nature of services provided.

We may, in the course of providing services to you, process personal data related to you and your business.  We will do this only in accordance with our data protection registration.

You will supply any information or assistance which we may reasonably require to provide services to you.  We may rely on this information and any instructions, however given, where we reasonably believe that the person supplying such information or instruction has your authority to do so.

Services provided to you
Where appropriate, we may provide our services from your premises or using computer systems provided by you.  Where this is the case, you will ensure that suitable arrangements are made and permissions given, including providing insurance.

Our services as supplied to you are for your benefit and information only and, except where required to disclose information by a competent authority or as agreed in writing by us, you will keep any product of our services confidential. 

We shall retain the ownership and copyright in the product of our services.  You will be granted a licence in perpetuity for the non-exclusive use of the product of our services on payment of our charges related to the production of that product.  You may copy any product of our services for your own internal use.

Notwithstanding our responsibilities to provide you with services, you will, at all times, remain responsible for the management and operation of your business.  You must decide to what extent you wish to rely on advice given to you by us and you are responsible for the implementation of any advice.  You will remain responsible for meeting any requirements imposed on you by any authority, including the Financial Services Authority.

Any advice given to you by us will not be legal advice or a legal opinion.  If we conclude that legal advice is required, we will inform you of this and facilitate your obtaining such advice.  We will not have any liability for advice given by any third party.

Where it is necessary to the services we are providing, we may speak to third parties about your business.  Except as required to do so by a competent authority, we will only do this having sought and received your permission.

Charges made by us
In return for the provision of services, you will, on presentation of our invoice, pay our charges as laid out in the accompanying letter of engagement.

If the provision of services is terminated, we will be entitled to payment for any services provided up until termination takes effect.

We may charge interest at the statutory rate on any amounts that remain unpaid thirty days after the presentation of our invoice.

This contract
This contract forms the entire agreement between us, supersedes any former agreement and can only be altered by mutual agreement in writing.

No party other than those detailed in the engagement letter will have any right to enforce or rely on any provision in this contract which does not confer any rights onto any third party.

Neither party will, without the prior written permission of the other, assign any benefit or responsibility under this contract to any third party.

In the event that either party does not enforce any rights available to them, those rights will remain available to them.

While providing services to you, we will not be liable for any loss or damage, including loss of profits, suffered by you or any other party as a result of the services provided however such loss or damage may be incurred, including by negligence.  We will remain liable for any fraud or deliberate breach of duty.

This contract and the provision of services which it covers can be terminated by either party giving 30 days notice in writing to the other.  The provisions in these terms which refer to confidential information, liability, the responsibilities of each party, and the rights under this contract will survive the termination of the provision of services.  All charges incurred up to the point of termination will become payable in full when termination takes effect.

Neither party will be in breach of their duties or obligations, nor will either party incur any liability to the other, if they are unable to comply with these terms as a result of any cause beyond their reasonable control.  If this event, both parties undertake as soon as is practicable to inform the other who will then have the option of terminating the provision of services with immediate effect.

Any notices described above must be given in writing to the party’s registered office address.

Each clause or term in this contract constitutes a separate and independent provision.  Should any provision be judged to be void or unenforceable, the remaining provisions will remain in force.

This contract will be subject to English law and all disputes arising will be subject to the exclusive jurisdiction of the English courts.

…The End!

At an early stage of planning a fund (especially if it’s going to end up as an unregulated collective investment scheme) it is vital to balance the regulatory, legal, commercial and marketing aspects of what you want to acheive.  Often initial discussions are with solicitors or with the FSA directly and, unfortunately, they often don’t provide the kind of strategic overview that is needed.

As we hope you have seen from this site, StypersonPOPE isn’t in the business of making things seem unnecessarily complicated (for instance, you may find it helpful to read our articles on Fund Structures and Routes to Promoting a Fund). 

To simplify things further, we now suggest an agenda for a ‘Fund Planning’ meeting.

• We need to understand your plans;
• we need to understand the fund’s stage of development;
• we need to understand the advice you’ve received already;
• we will give a full picture of the compliance landscape;
• we will discuss the most appropiate reguatory option for you;
• we will discuss the routes to market available to the fund;
• we will advise on the next steps; and
• we will make introductions to suitable contacts.

We won’t be watching the clock but, from experience, we expect the meeting to take around an hour and a half.  We will follow the meeting with a written note of what we have discussed and further clarification of anything which remains unclear.

If you’d like to get together for a discussion, please  contact StypersonPOPE’s Managing Director,  Simon Webber, on sw@strategic-compliance.co.uk or +44 (0) 7710 260 717.

As with most types of financial services, people who are not authorised and regulated by the FSA are very restricted in how they can promote an unregulated collective investment scheme.  Unusually even regulated firms are subject to tight restrictions.  The Financial Services and Markets Act 2000 (let’s just call it FSMA), makes it an offence for anyone to promote a scheme to the public:

“An authorised person must not communicate an invitation or inducement to participate in a collective investment scheme.”

Fortunately, for regulated firms, there are a few exemptions, one set is created by Treasury Order and the other by the FSA.

Treasury Exemptions
If an investor falls into one of the categories below, a fund can be promoted to them but the promoter must ensure that the investor falls into the category before making a promotion:

• Investment Professionals (authorised firms and investment companies);

• Sophisticated Investors with a certificate signed by an authorised firm covering unregulated schemes; and

• High Net Worth Companies and Unincorporated Associations.

For some schemes that invest in unlisted securities, authorised firms can also invite High Net Worth Individuals and Sophisticated Investors to self-certify.

FSA Rules
These allow a scheme to be promoted to investors who have undergone an assessment by an authorised firm, including:

• individuals for whom the scheme has been assessed as suitable (usually by a financial advisor); and

• individuals for whom an assessment of experience, expertise and knowledge has been undertaken (sometimes by a financial advisor or the scheme’s Operator).

In these cases, a fund can be promoted to a potential investor on the basis that they will be prevented from investing unless they successfully complete the assessment (which may occur after the promotion has been made).

Whichever exemption the investors fall into, the documents for the scheme must meet detailed requirements laid down by FSMA, the Treasury and the FSA. These include presenting a balance of risk and reward, carrying appropriate warnings, giving sufficient information, and always being clear, fair and not misleading.  Summary documents can be used but these also have to meet the rules and must be consistent with all of the other information given to investors.

In most cases, an FSA authorised firm can approve the scheme documents and summaries for distribution by an unauthorised person but only to the relevant categories of exempt investor.  To rely on the FSA’s exemptions, careful procedures will need to be followed by the authorised firms (see our Services For Operators).

If you would like to discuss your plans to market an unregulated collective investment scheme, please contact Simon Webber, StypersonPOPE’s Managing Director, on 07710 260 717 or sw@strategic-compliance.co.uk.

In 2008, the FSA made “Data Security” one of their priorities and although they do not lay down rules specific to data security, they expect authorised firms to take it extremely seriously as part of their commitment to establishing effective management systems and controls, and their obligation to treat customers fairly.

The risk of damage to a firm’s reputation and the cost of dealing with lost or stolen client information is bad enough but worse still is the danger that clients may be exposed to identity theft. Even small financial services firms which hold limited data on clients can be targeted by organised criminals or casual opportunists. The greatest threat often comes from the firm’s own staff; database encryption and secure servers are pointless if somebody can take client information away from the office on a CD or accidentally leave their laptop on a train.

The first step in establishing data security, is a performing a risk assessment specific to your business. The advice from the FSA is that:

“If firms think their in-house resources or expertise are inadequate to perform an effective risk assessment, they should consider seeking external guidance.”

Once completed, the risk assessment becomes the foundations on which proper policies and business-specific procedures can be built.

“We were not convinced by firms that claimed to have detailed data security rules but were unable to produce written policies and procedures”

Of course written policies are pointless if staff are not appropriately trained in their use. Because many people wrongly assume that data security is common sense (and because, let’s face it, it’s not a subject naturally dripping with drama), it is important to be creative.

“Our experience shows that many instances of data loss occur because staff do not know or understand relevant policies and procedures.”

Of course, we hope that risk assessments, appropriate procedures and effective training will prevent data loss or theft but if the worst happens, firms must decide how to react and this will probably involve advising those affected, something which must be done carefully but swiftly.

“Firms should consider telling affected consumers exactly what data has been lost, give them an assessment of the risk and give advice and assistance to consumers at a heightened risk of identity fraud.”

For a business-specific risk assessment, help creating suitable procedures, and some effective training on data security, do please give us a call or send us an e-mail.

We’ve developed the following brief guide to the successful launch of a fund as an unregulated collective investment scheme.  StypersonPOPE offers a variety of services throughout this process and these are noted below:

1. Idea – As with all investments, a fund must have a good idea behind it. It doesn’t have to be clever (the simpler the better!) but it does have to be well thought through and capable of delivering returns which will attract investors.

2. Initial Regulatory Options – depending on what you want to achieve, you will either have to understand the regulations you will be working within or plan how you can operate without undertaking regulated activity. In either case, it’s vital to understand the potential investment structures, how they are regulated, and how each is viewed by investors.

If what  you have in mind could be described as a ‘fund’ then it is likely that you have come up with a Collective Investment Scheme. In that case, you need to have early discussions with an operator but, more importantly, you need to understand the rules which apply to make sure that your advisors keep focused on what you want to achieve and don’t just throw up regulatory roadblocks.

Often, it is helpful to have one person coordinating all of the advisors and this is familiar territory for StypersonPOPE. We work with a number of experienced operators and solicitors to whom we can introduce you if you don’t already have strong relationships.

3. Market Research – after your initial discussions with advisors, and before you start spending too much money, you must make sure that your idea will work. As ever, it’s vitally important that you know you customer (the investor); who are they, what are they looking for, what else is on offer to them.  Your fund must be able to deliver suitable financial returns to investors, it must be something for which investors have an appetite, and you must carefully consider the competition and existing best practice in your market.  Most of what is produced in the research will feed directly into the Information Memorandum so it’s also important to make sure that the conclusions are well supported.

StypersonPOPE can carry out much of this research and will produce three important documents:

1. A clear indication of whether the investment opportunity is likely to be attractive to investors.

2. A ‘business and marketing plan’ which addresses the remaining steps to launch and run the fund.

3. A ‘due diligence pack’ which records the sources of facts, opinions and assumptions.

(This final document will be important for ensuring that the Information Memorandum can be approved without unnecessarily duplicating effort.)

4. Information Memorandum – this is by far the most important document and must be produced within rules laid down by the FSA. Ultimately, your Operator will approve this (or otherwise!) so you must write it in a way with which they are happy. You must also remember that its principal purpose is marketing – if it doesn’t sell the investment, you may as well not bother! Solicitors and Operators don’t always have marketing at the forefront of their minds, so you need to find somebody to coordinate the efforts, who understands the rules and regulations you must observe and the most effective way to market to investors.

StypersonPOPE includes within the team, experienced marketers, designers and writers who know what investors will want to see and who thoroughly understand the limits imposed by regulations.

5. Legal & Regulatory Approval – having prepared the IM, it must be approved by your Operator and they may require a legal review. The IM should have been written with the regulations in mind and the facts, opinions and conclusions must be properly supported by documented evidence and assumptions.

By involving StypersonPOPE from an early stage this, sometimes difficult, process can be made very straightforward.  We have often become involved here at the request of one or other party but it’s much better (and cheaper) to get it right first time rather than try to put right what has already gone awry.

6. Design for print, e-mail and web – once approval has been obtained, the final documents can be prepared. Often these will include a printed IM and Executive Summary and their e-mailable equivalents and possibly a web site from which investors can download copies. Each of these must comply with the regulations and because the circulation will be heavily restricted, web sites in particular must be carefully planned to ensure that relevant information reaches only those for whom it is intended.

By combining print and new media design skills with a deep understanding of the rules surrounding the distribution of Collective Investment Schemes, StypersonPOPE can create a suite of compliant and effective marketing documents as well as clear procedures for ensuring that they are distributed appropriately.

7. Marketing – there are several routes to market for this kind of collective investment scheme and these will have been planned at an early stage. One of the most common routes to market is through financial advisors.

StypersonPOPE can assist with marketing whether it be compiling a target database for an e-mail campaign or hosting nationwide roadshows for financial intermediaries.  Where allowed, StypersonPOPEcan also manage campaigns to individual High Net Worth Investors whether through respected (non-IFA) intermediaries or through direct mail.

8. Receiving Applications – dealing with applications for investment can itself be a regulated activity (“receiving and transmitting orders”).  Often the Operator will handle this directly but in some cases, particularly if the Operator is based outside the UK, it may make sense for somebody else to receive, check, complete, and forward on the applications as this can involve a process of ‘to-and-fro’ with the investor’s advisors. 

StypersonPOPE can help find an authorised person to perform this service or, where appropriate, manage a variation of permissions to allow you to do this yourself.

As you have seen, StypersonPOPE’s broad range of services can assist throughout the process of establishing a fund whether it is still just an idea or whether it is seeking further rounds of investment.  To discuss how we can help in your particular circumstances, please call or e-mail Simon Webber and we can begin our discussions. 

“The rain, it raineth on the just and also on the unjust fella;
but chiefly on the just, because the unjust steals the just’s umbrella.”
Sam Ervin – US Senator 1954 – 1974 

It would undoubtedly be easier to make money if we chose not to follow the increasing number of regulations to which we are subject.  After all, it’s probably more profitable to rob a bank than to run one.

However, as we offer compliance advice (as opposed to non-compliance advice) we feel the real trick is knowing how to make the most of what can be acheived within the regulations. 

It’s vital not to see the compliance function as a brake on enterprise; it must be a partner in the firm’s strategic development; if it’s not, then you need to review your compliance function urgently.

If you would like to discuss any aspects of strategic compliance advice, please call or e-mail us.

All FSA-authorised firms are required to ensure that their businesses are not used to facilitate financial crime.  Since December 2007, many unregulated companies have joined them, becoming responsible to other regulators including HMRC and the Office of Fair Trading (OFT).

The Joint Money Laundering Steering Group (JMLSG), part of the British Bankers’ Association (BBA), has devised rules for all of these businesses to follow in their anti-money laundering efforts.  Because of our familiarity with these rules, we can prepare appropriate procedures based on your business’ exposure to the risk of financial crime.  We can tailor these to fit your existing business processes and ensure that they are easily understood, implemented and overseen.

We are able to offer the services of an FSA and HMRC-approved Money Laundering Reporting Officer who can oversee the processes we implement and report to your Board, SOCA or you relevant authority as required. 

If you would like to discuss any aspects of money laundering reporting, please call or e-mail Simon Webber, our Managing Director.

IFAs are not the only route. 
“Unregulated Collective Investment Scheme” (UCIS) is something of a misnomer.  Far from being unregulated, the FSA restrict these schemes very tightly indeed – for funds structured as a UCIS, there is a simple edict:

“Such schemes cannot be marketed to the general public and are otherwise restricted in their promotion.“

As a result, the promotion of unregulated collective investment schemes, must be carried out very carefully and only to selected groups of investors.  Often the only route considered is through IFAs but in fact any authorised firm, and even unauthorised firms, can promote a UCIS as long as the approach is planned carefully and carried out correctly.

Summary Documents
For the sake of making the fund more attractive to investors, the detail of the information memorandum (IM) needs to be distilled, summarised and presented in a more user-friendly, marketing-led form.  Although secondary to the IM, this document must still meet the stringent demands of the FSA.  We produce summary documents, ensuring compliance, and with marketing expertise on hand, as well as design and print facilities, we can offer a full service if required.

Alternative Routes to Market
For some funds, IFAs may not be the best (or at least the only) route to market and with our assistance, General Partners, Managers, Advisers, and Promoters of such schemes can negotiate a marketing plan with their Operators, draft documents and produce a set of procedures which allows them to engage with individual investors under specific exemptions to the rules.

Losing a colleague at short notice is always difficult but if your firm is FSA authorised, and the person you lose is a Compliance Officer, it’s essential to find an Interim Compliance Officer as quickly as possible.  Quite apart from the day-to-day compliance issues, and the risk of running up considerable costs for external advice, the FSA demands that all firms have a Compliance Officer:

A firm which carries on designated investment business… must allocate to a director or senior manager the function of having responsibility for oversight of the firm’s compliance.

An approved person performing a significant influence function must exercise due skill, care and diligence in managing the business of the firm for which he is responsible in his controlled function.

We can provide an Interim Compliance Officer with the necessary skills to fulfil the FSA’s requirements but, much more importantly, with the experience of working at Board level and capable of quickly understanding your business while playing a full role in the strategic direction of compliance matters.  We can also take responsibility for training up your permanent replacement and will gladly stay on as a mentor or just to give occasional advice on more specialised subjects.

Simon Webber, who will act as Interim Compliance Officer, serves permanently on a number of Boards either as Head of Compliance, Director or Non-Executive Director.  If you would like to speak to Simon about any aspect of compliance, please call or e-mail him.

When running an authorised business, or even when operating within exemptions to authorisation, it is vital to have an understanding of the compliance environment.  How else can you effectively plan the strategy of the firm? 

It is necessary for the management of firms to have a working knowledge of compliance without being paralysed by the details.  We base our awareness advice on three levels of knowledge:

• What you need to know (day-to-day)
• What you need to look out for (exceptional situations)
• Who to turn to for more detailed advice

Some staff can receive formal compliance training as a group.  This may create high awareness but relatively low understanding.  Board members, and anyone else involved in the strategic development of the firm, will need to have a more thorough understanding, but only of those areas of regulation which directly affect their firm.  We deliver awareness advice to Directors on a one-to-one basis giving ample opportunity for the free discussion of issues which may affect the firm.  We then remain available to Board members and divisonal heads to give ad hoc advice as it’s required.

If you would like to discuss any aspects of strategic compliance advice, please do call or e-mail Simon Webber, our Managing Director.

As well as ongoing and strategic advice, most firms will require occasional, more intensive advice either to acheive a specific goal or to overcome a particular issue. 

Examples of our recent acheivements include:

• Designing strategic alterations to a client’s permissions and corporate structure to reduce FSA-required capital reserves by over 90%;
• Overseeing an application to the FSA from a new corporate finance firm;
• Creating and writing processes for two corporate finance firms;
• Updating documents and processes after FSA rule changes (CRD and MiFID);
• Creating and writing processes for a new division operating in a new market;
• Designing a plan for an innovative private equity investment scheme to market directly to individuals rather than IFAs;
• Creating compliant documents for two property investment funds; and
• Designing business models to avoid unecessary (and costly) regulation for unauthorised firms.

If you would like to discuss any projects or issues that require strategic compliance advice, please do call or e-mail Simon Webber, our Managing Director.

It is vital to the devlelopment of any regulated business that the Board is well advised on compliance and that the advice is strategic, not reactive.  It is unlikely that smaller Corporate Finance, Private Equity and Collective Investment firms will need to have a full time team member to advise on or oversee compliance and that is why they should look to an advisor who can be on hand when (and only when) required.

Examples of recent strategic advice to Boards includes:

• A corporate restructuring to reduce capital requirements
• Establishing a division, in a new business area, under new FSA rules
• Board-level compliance training (formal and informal)
• Effecting variations of permissions to cut costs and increase scope
• Performing strategic assesments of risk (including ICAAP)
• Creating business procedures for new and existing businesses
• Planning marketing, and creating documents, for funds and schemes

If you would like to discuss any aspects of strategic compliance advice, please do call or e-mail us.