Regulation update: UK LP reform
SVB Fund Times | January 23, 2019
UK Limited Partnership reform continues as the government attempts to increase the UK’s competitiveness in this area. However, given Brexit uncertainty, the latest developments are vague at best.
Following a major overhaul of the UK’s Limited Partnerships Act in April 2017, as part of the government’s wider Industrial Strategy, further adjustments to the structure continue to be made.
The latest public response, following another consultation, comes against a backdrop of falling registrations for UK LPs. Although not made explicit in the latest report, it is likely the UK LP structure is losing out to private fund regimes in the Channel Islands and Luxembourg’s special limited partnership.
The following proposed changes focus on the improving the registration process and boosting transparency:
1. Mandatory appointment of AML supervised agent
This measure was proposed in the consultation to prevent misuse of the LP.
Respondents agreed that appointing an AML supervisory body would be only of minimal burden. The government intends to make this mandatory for new applications, with overseas applicants subject to equivalent standards. It is currently considering how best to do this.
2. No obligation for Principle Place of Business (PPOB) to be in the UK
Most respondents (predominantly fund managers) said a mandatory PPOB in the UK would be detrimental to the private equity industry, as it would risk making UK LPs unattractive to investors.
A proposal for UK LPs to have a UK-based Service Address was the preferred option. The government’s intention, based on the responses, is for UK LPs to demonstrate some link to the UK. To do this, it will request information about an LP’s connection to the UK, either though the registration form or on an ongoing basis.
3. No obligation for LP to register UK bank account
The government understands the current flexibility of the UK LP is a key attraction for overseas investors. While it will not seek to make a UK PPOB or UK bank account mandatory, it does believe LPs registered in the UK evidence a demonstrable link to the UK. The government is considering how to apply this to existing LPs.
4. Mandatory filing of annual confirmation statement
It’s no surprise that future adjustments to the UK LP regime will seek to increase transparency. In this light, the government has considered the filing of annual confirmation statements for LPs. This is already a requirement for Scottish LPs , and several respondents believe there should be alignment.
While none of the respondents outright disapproved of the annual statement, there was clear concern as to what should be included in the report. It was argued the statements shouldn’t include accounting information, on the grounds that it would be administratively burdensome, and that the government already receives this information via returns submitted to HMRC.
A key function of introducing an annual statement requirement is to support the Registrar in distinguishing active and inactive LPs, with a view to striking off those no longer operating.
Speaking privately to a UK-based funds formation lawyer, enabling the removal of LPs from the register of companies simply highlights the inefficiencies of the current LP framework, rather than any serious or impactful legal changes.
While all of the proposed changes and intentions have prioritised private equity and venture capital, there are bigger questions to be asked around supervision and enforcement. These latest developments will put more pressure on Companies House. However, it is widely believed that Companies House at present capacity would be unable to manage the additional pressure.
And when put in the context of Brexit – the question as to whether or not the UK will attempt to compete with non-European structures – it seems clear this latest announcement acts as a placeholder until the UK’s future relationship with Europe is better understood.
Gavin Rees is Silicon Valley Bank's Head of Global Funds Banking in Europe.