“Good resolutions are useless attempts to interfere with scientific laws. Their origin is pure vanity. Their result is absolutely nil. They give us, now and then, some of those luxurious sterile emotions that have a certain charm for the weak.... They are simply cheques that men draw on a bank where they have no account.” 
The Picture of Dorian Gray, Oscar Wilde, 1890

Welcome back after whatever festive break you managed in these unusual circumstances. We were very lucky as both our children are students and were allowed home, so Christmas was pretty much as normal. We realise that this was not the case for many people. Hopefully things will be better this year. We assume that despite Oscar Wilde’s clear guidance on resolutions, many of you have made resolutions, and that a substantial number of you will have committed to take more exercise. If this involves bicycles, John hopes to restart the monthly property cycle rides once life returns to normal. Please let me know if you want to be added to the cycling mailing list. There is also a bit later in this newsletter about Remit Consulting’s (virtual) cycling tour of offices with great facilities for cyclists.

As we bid farewell to 2020, spare a thought for all those people who a decade ago produced “2020 vision” reports with their forecasts for what the year 2020 would be like. Who would have thought that the most accurate would come from writers of dystopian science fiction?

Apologies in advance, but this newsletter is a bit opinionated on two subjects, both of which we have been covering as they unfold, Brexit and the FCA mini-bond scandal. There is quite a lot of other stuff in here too, plus of course some historical trivia at the end, for which we managed to find a highly tenuous link to the EU/UK Trade Agreement.


"So long and thanks for all the fish"
The Hitchhiker's Guide to the Galaxy, Douglas Adams, 1978.

The first opinionated piece.

You will be relieved that this is not a general polemic regarding the general stupidity of Brexit, although as John noted on Twitter, Michael Gove now seems to be channelling the spirit of John Knox over Brexit. It is good for your immortal soul because it is miserable and reduces your ability to succumb to the temptation of luxuries. We were also slightly surprised to see that the swivel-eyed loons of the ERG named their group to review the trade deal, the Star Chamber. We admire the level of historical trivia self-trolling in this, the original Star Chamber being abolished in 1641 due to its corruption, arbitrariness and lack of transparency. Somewhat bizarrely the ceiling of the earlier Star Chamber is here on the Wirral at Leasowe Castle after it was salvaged from the old Palace of Westminster before the Star Chamber was demolished in an 1806 building project. We will be writing a letter to Mark Franç
ois to tell him that it is not a real, sovereign Star Chamber meeting unless it is held under the original ceiling at Leasowe Castle.

The parliamentary debate last Wednesday featured Conservative MPs claiming simultaneously that five hours is plenty of time to debate the implementation of the deal with the EU and also that it is the most important piece of legislation since 1689 (when we concluded that our own Royal Family was not up to the task so invited the Dutch to invade us, which seems an odd thing to get Bill Cash so excited). As explained further below, the Prime Minister’s claim that it was a great deal for financial services was particularly ludicrous. The Trade Agreement with the European Union is incredibly flimsy on financial services which is mainly covered in a half page side agreement that says that a Memorandum of Understanding will be agreed by March. You can read our blog about it from Boxing Day
here. The key phrase from the blog is that "we are in the dark but have jointly agreed we can light a candle".

The Financial Services agreement is part of a package of agreements dated 25th December, which you can find 

The second agreement in the package is on another topic that we have been covering extensively in this newsletter, a joint political declaration on countering harmful tax regimes through the OECD Base Erosion and Profit Shifting (BEPS) Action Plans. Some of the conspiracy loons still think that the whole point of Brexit was so that Rees-Mogg could avoid the EU anti tax avoidance directive. If it was about avoiding ATAD, he is going to be a tad disappointed (Christmas cracker joke for tax accountants). One area where there has already been some movement, a topic that we have been covering in this newsletter, is the implementation (or otherwise) of DAC 6, the EU amendment to Directive 2011/16/EU on Administrative Cooperation in the field of taxation. The UK DAC 6 Statutory Instrument was passed last Wednesday. You can find it
here. This reduces the application of reporting as only arrangements within Category D of DAC 6 will now need to be reported in the UK. This is intended to be a temporary measure until the UK introduces legislation to apply OECD mandatory disclosure rules (MDR). We will cover this further as more details emerge. The whole thing has popped up rather unannounced so we await the proposed new rules with eager anticipation.

For overall context, the financial services provisions in the Trade Agreement are about half the length of the fishing provisions in relation to access to waters of the Bailiwick of Guernsey, the Bailiwick of Jersey and the Isle of Man.

The FCA and the mini-bond scandal

The second opinionated piece.

In our previous newsletter, we covered the FCA announcement that the temporary ban on marketing mini-bonds to retail investors had been made permanent, High-risk investments: Marketing speculative illiquid securities (including speculative mini-bonds) to retail investors. You can find the details 
here. The reason for the timing became apparent with the publication of the Report of the Independent Investigation into the Financial Conduct Authority’s Regulation of London Capital & Finance plc. This investigation report is a damning indictment of FCA failure over its supervision of LCF and of the mini-bond market more generally. It stretches to 308 pages plus another 172 pages of appendices. You can find it here.

The reason we have been covering this issue is because it was apparent that the issue of mini-bonds was being used to circumvent the rules that govern the type of real estate fund that can be marketed to retail investors. As the investigation report notes on page 131, page 1 of a report to the risk committee of the FCA Supervision – Investment, Wholesale and Specialists (SIWS) division in July 2017 referred to mini-bonds being “issued by pooled investment special purpose vehicles (SPVs), often investing in the purchase and/or development of property, land, renewable energy and other speculative (and in some cases, likely fraudulent) investment ventures”. Despite this, it took the FCA nearly two and a half years until November 2019 to issue a temporary ban, long after LCF had already gone bust in January 2019. 

As the Financial Times commented, "The long-awaited review by Dame Elizabeth Gloster found the City watchdog had failed to properly regulate the now collapsed company and warned its handling of information from third parties regarding the business was "wholly deficient".

The report said it was an "egregious example" of the FCA’s failure to fulfil its statutory objectives in regulating London Capital & Finance."

The fallout has started, but is likely to continue. The FCA has apologised, as has Andrew Bailey, now Governor of the Bank of England but at the time chief executive of the FCA. A number of MPs are agitating to to get their teeth into this and have already called for two senior FCA executives to repay their bonuses. Thirteen businessmen are being sued by the administrators of LCF who have accused them of defrauding the business. This includes former Conservative minister Charles Hendry. This story is therefore unlikely to disappear quickly, which does raise questions about Bailey’s position as Governor of the Bank of England. John was quoted in the press a year ago questioning his suitability for the role. Other, more qualified, candidates were excluded for suggesting that Brexit was not a good idea, whereas Bailey had expressed himself in favour of regulatory divergence from the EU. As others were eliminated from the race, Bailey bobbed to the surface like "the morning toast, that floats along”.

The only thing that can really be said in Bailey’s defence is that the FCA has been too busy to deal with this and a variety of other issues as almost all resources have been diverted to dealing with Brexit. However, as Bailey has been a proponent of developing our own regulatory framework rather than following EU rules, that is to significant extent a matter of choice.

Open-ended property funds

On 11th December, the Bank of England’s Financial Policy Committee (FPC) published its latest Financial Stability Report. Right at the back is a comment on the current FCA consultation on open-ended property funds:

The FPC judged that the FCA’s recent proposals to extend the redemption notice periods for open-ended property funds were better aligned with principles the FPC had previously set out to address liquidity mismatch in open ended funds. The FPC considered that, from the perspective of financial stability, and given the illiquidity of property assets in stressed conditions, there would be benefits from extending notice periods to at least as far as the range proposed in the consultation. The FPC also considered that further work was now needed by authorities, funds, platforms and investment managers acting in concert to ensure that pools of capital were able to be deployed into fund structures with longer notice periods. The FPC recognised the importance of addressing liquidity mismatches in open-ended funds internationally, given the global nature of asset management, and within that, the UK’s role.

John was quoted extensively in an article on CoStar on this and the broader implications of the FCA consultation. You can find it


Everything we write on the EU Alternative Investment Fund Managers Directive (AIFMD) now comes with the caveat that we do not know how long UK rules will remain aligned to the Directive.

Main consultation

As mentioned in previous newsletters, John is part of an Association of Real Estate Funds (AREF) team working on a response to the EU consultation on changes to the Directive.

Along with other industry bodies, the broad approach in the AREF response is to suggest that the existing "level 1” regulation, in the form of the Directive itself, is not changed but that areas of uncertainty can be dealt with through changes to the "level 2” regulation and clearer guidance.

On 16th December, AREF held a roundtable event to obtain member feedback, which John chaired. The speakers were the members of the AREF team working on the response:
  • Michael Newell, Partner at Cadwalader, Wickersham & Taft
  • Ben Robbins, Partner at Mourant
  • Melville Rodrigues, Senior Consultant, Fund Services at Ocorian
  • Hanny Tirta, Head of AIFM at Langham Hall
You can download the consultation here and respond here. The deadline for responses is 29th January. AREF will be circulating its draft to members before submission.

ESMA on Article 25 (leverage)

On 17th December 2020, ESMA published guidelines on Article 25 of the AIFMD. This followed a Consultation Paper on the proposed draft Guidelines which ESMA published on 27 March 2020 and which closed on 1 September 2020. AREF had submitted a response to which we had made a tiny contribution. 

You can find the new guidelines 

Although the guidelines are for National Competent Authorities (NCAs) for the purposes of assessing systemic risk, this will have a knock-on effect for investment managers (AIFMs). 

ESMA has agreed that NCAs should undertake the risk assessments quarterly, but using the leverage limits that AIFMs already produce. ESMA has also agreed that the reporting should use the same thresholds regardless of the underlying asset types. 

The key thing to note, however, is that ESMA has made it clear this is separate to the broader consultation on AIFMD referred to above and work that IOSCO is undertaking on leverage in investment funds, so further changes for AIFMs may also arise.

HM Treasury’s consultation on Asset Holding Companies

We have covered HM Treasury’s first round consultation on the tax treatment of UK asset holding companies (AHCs), which closed on 19th August. John drafted the response from the Investment Property Forum. John also coordinated with AREF, INREV and the Law Society to share the IPF’s work with these other organisations responding to the consultation.

The second round of the consultation was published in December. You can find it 

This second stage consultation will run from 15 December 2020 to 23 February 2021. Draft legislation will then be published during 2021, allowing for a period of technical consultation ahead of its inclusion in the Finance Bill. This is part of the broader review of the UK funds regime, which will also be taken forward in 2021.

The key conclusion from the first round consultation is that there is a business case for developing a UK AHC regime, if tax obstacles can be eliminated. It is proposed to bring forward two broad sets of changes:

a) The establishment of a new regime for AHCs. "This will aim to deliver an appropriately targeted, proportionate and internationally competitive tax regime for AHCs that will remove barriers to the establishment of these companies in the UK”.

b) To introduce "changes to the UK’s existing Real Estate Investment Trust (REIT) regime, to better allow UK REITs to serve as AHCs for investment in real estate.”

Following initial virtual meetings in December with those who had participated in the first round consultation, which John attended on behalf of the IPF, the Treasury has arranged follow-up meetings in January to address specific features to be reflected in the design of the new regime. This includes specific questions on the use of AHCs to hold overseas real estate. 

We will provide an update at the end of January once the follow-up meetings  have taken place and the various industry body responses are taking shape.

Solvency II

On 17th December, the EU regulator EIOPA published its opinion on the 2020 review of the Solvency II Directive. You can find it, and supporting materials here. As we have covered previously in this newsletter, this is part of the EU Capital Market Union programme. 

We reported in our newsletter a year ago that EIOPA, was running a consultation on the Directive which included the opportunity to comment on the SCR volatility shock calibration for property as an investment asset. The consultation closed in January. John drafted the industry responses for AREF and the IPF and contributed to the INREV response. All three responses supported the MSCI proposal that the shock should be reduced from 25% to 15% to reflect European rather than UK historic volatility. 

We undertook this exercise without any great hope of success and, as anticipated, EIOPA has left the property shock at 25%.


We covered the consultation on EU Long Term Investment Funds (ELTIFs) when it was published in November. This is a saga that has been running since the first draft regulations were published on 26th June 2013, just as we were setting up John Forbes Consulting LLP. 

The main challenge from our perspective is that the European Commission questionnaire is very detailed, whereas in our view the challenge for the ELTIF is more fundamental. It is not clear what the EU really wants to achieve with the ELTIF. Is it intended as a way to channel investment into worthy projects or is it a way of creating an investment vehicle to allow investors, particularly retail investors, to invest more generally in long term illiquid assets? It currently tries to do both but does not really achieve either. When the ELTIF was launched, we commented that it expectations as what it might achieve were not matched by incentives to encourage anyone to use it. We described it as as a superhero without any obvious superpower. This remains the case. For this reason, for institutional investors there is no benefit for being an ELTIF over and above being an AIF under the AIFMD, which all ELTIFs need to be anyway. 

In our view, the better course of action would be to develop the ELTIF as retail investment product for long-term investment:
  • In terms of the rules to protect retail investors, there are already protections in MiFID II. For example “complex” products under MiFID II are only marketable to advised retail investors. There is a question in the AIFMD consultation referred to above about creating a new class of AIF for semi-professional investors. In the response from AREF, it is proposed to suggest that AIFMD is left unchanged and that this is dealt with somewhere else, e.g. the ELTIF rules. This would seem to us to be a sensible place for the ELTIF to end up.
  • If the ELTIF becomes a general long-term investment product to invest in illiquid assets without any specific requirement that the investments provide a wider social purpose. To the extent that managers wanted to offer funds with sustainability characteristics or sustainable investments, this would be covered by the new Sustainable Finance Disclosure Regulation (SFDR). You can find the SFDR here. A financial product that promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics is dealt with under Article 8 and a financial product that has sustainable investment as its objective is dealt with under Article 9.

We are feeding in our views to INREV rather than making our own submission. If you have views on the subject that you wish us to share, please let us know, or you can send them directly to Jeff Rupp at INRV,

The consultation runs until 19th January. You can find it 

ICAEW webinar

John is speaking on an Institute of Chartered Accountants webinar on 16th February on the future of retail. This is part of the ICAEW Construction & Real Estate Community programme, which you can find here

If you would like details of the webinar when they are available, please let me know.

Remit Consulting’s "ReTour-III” virtual cycling tour

ReTour is Remit Consulting’s annual cycling tour of office properties in central London. ReTour allows property managers, asset managers, and others, to see and experience cycling facilities from the perspective of an occupier and what is involved in providing and managing such amenities. This year is virtual rather than actual. You can find details here

Historical trivia - the EU/UK Trade Agreement, Arbroath Smokies and the memorable episode of Fall’s balls

We have been concentrating on the financial services aspects of the Trade Agreement with the EU, but as that only took five minutes, we wandered off into an area well outside our expertise, Protected Geographical Indication rules. We understand that Protected Geographical Indication status will continue to apply to that fine Scottish product, the Arbroath Smokie, and that the Forfar Bridie is also possibly under discussion. We have some slight scepticism about the export potential of the latter. John’s experience from university in St Andrews was that the bridie was ideally eaten piping hot and swimming in fat straight from the all night bakery after a heavy night in the pub. This has two drawbacks for its export potential:

a) In its perfect hot but soggy state, it has a half life of about ten minutes;

b) As with the Mealie Pudding, we are not sure that the rest of the world is quite ready for a product for which the main active ingredient is fat.

This is a digression, so let us return to Arbroath Smokies and the memorable episode of Fall’s balls. The Arbroath Smokie is a smoked haddock, and by all civilised measures it is a very fine product indeed, particularly when served with a poached egg. It achieved its EU Protected Geographical Indication in 2004. The smoking technique, using wet jute sacks, goes back to the late eighteenth century, which is also when the memorable episode of Fall’s balls occurred, the third most memorable episode in Arbroath’s history. The events ahead of it are firstly the Declaration of Arbroath in 1320 affirming the independence of Scotland under Robert the Bruce and secondly Arbroath Football Club beating Aberdeen Bon Accord 36-0 in 1885, still the world record for the highest number of goals scored in a professional football match. 

The incident of Fall’s balls occurred in 1781, during one of our periodic contretemps with the French so perhaps a precedent for the present. Captain William Fall was an American privateer for the French. The Americans choosing to side with the French might also be a precedent. Fall arrived in Arbroath Bay in command of an armed ship, the Fearnaught, and demanded £30,000 ransom from the town. After some debate, the town council made a counter-offer of £1,250, and whilst negotiation continued summoned military assistance from nearby Montrose. Fall continued to demand the full amount and opened fire with “hot shot” in attempt to set fire to the town. This had limited effect, the First Statistical Account of the parish of Arbroath of 1792 noting that it achieved nothing "except knocking down some chimney tops, and burning the fingers of those who took up his balls, which were heated”. 

Making little headway and the town’s offer of £1,250 having been withdrawn, Fall settled for ransom of two small boats he had captured in the bay, for a total of 120 guineas and set sail. The History of Arbroath to the Present Time, by George Hay, Editor of the Arbroath Guide, 1876, proudly concludes, “Thus terminated this locally memorable episode of the wars in which the country was then engaged”. 

For anyone who is interested, some of the balls concerned are preserved for posterity in the local museum in Arbroath:

As usual, feel free to forward this email to others for whom it may be of interest.  If this message was forwarded to you, you can sign up to the mailing list here, and see the previous editions of this mailing here  You can unsubscribe from the list using the links at the bottom of this message.  Our privacy policy can be found here.

Helen Forbes
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