The 1st July marked the seventh anniversary of John Forbes Consulting LLP, an anniversary and a deadline for Brexit and the start date for DAC 6. We cover these below. The week before was the fourth anniversary of the Brexit referendum so we have some thoughts on that too. Plus some other things. In the forthcoming events section towards the end of the newsletter, John is involved in seminars on two topics that we have covered in the past that are very relevant for the real estate investment management industry, the challenges of including illiquid investments in DC pension funds and the EU consultation on ESG reporting standards for fund managers. Our historical trivia on this occasion is on the highly topical subject of ancestral misdemeanours.
Seven years in business
As mentioned above, 1st July marked seven years since John left PwC and set up John Forbes Consulting LLP. You can read our review of our seventh year here.
A very brief Brexit update of sorts
As we covered in our previous newsletter the 30th June was, at least in theory, a crucial deadline in the current Brexit negotiations. It was the last date to request an extension to the transition period. It was also the deadline for agreeing equivalence for financial services. Of historical interest, it also marked the 50th anniversary of the resumption in Luxembourg of British negotiations to join the European Communities, after two previous attempts to join had been rebuffed by the French. The negotiations were successful, the Treaty of Accession was signed in January 1972 by Edward Heath and United Kingdom's membership came into effect on 1 January 1973.
Moving back to the present and the negotiations as we attempt to reverse back out again, the key development as the financial services equivalence deadline passed, was the spat over whether the UK had submitted its homework on time. On 29th June, Valdis Dombrovskis, the European Commission Executive Vice-President with responsibility for financial services announced that the UK had only submitted 4 of 28 questionnaires on the UK financial services regulatory regime. Michel Barnier also picked this up on the 30th. The UK responded that there had been over 1,000 pages of questionnaire and that there had been insufficient time to complete them.
The negotiating round that straddled 30th June started on Monday 29th June and was supposed to run until Friday 3rd July. It was brought to an end early on 2nd July with little progress having been made.
Some of the press coverage suggests an alarming level of ignorance, even at this stage in proceedings, with the Financial Times quoting some in the investment management industry still hoping for a deal that would allow passporting of the marketing of funds to continue. As the UK has not asked for passporting and the Political Agreement to the Withdrawal Agreement only envisages, in the best case, basic equivalence, the idea that passporting might continue appears somewhat optimistic, to say the least. As we have covered previously, the further development of the Capital Markets Union increases the impact of the loss of passporting.
In terms of how the UK sees it financial services regulatory regime operating post Brexit, this was set out in a Written Ministerial Statement submitted to Parliament by the Chancellor of the Exchequer on Tuesday 23rd June. The Investment Association has provided an analysis which you can find on the AREF website here.
We will write a fuller blog on Brexit once there is something more tangible to analyse.
DAC 6 update
We have been covering the European Union Directive to amend the 2011 Directive on Administrative Cooperation (DAC 6) on its somewhat torturous legislative process. As might be guessed from the name DAC 6, this is not the first time that the 2011 Directive on Administrative Cooperation has been amended. The DAC 6 amendments introduce mandatory disclosure by taxpayers and intermediaries of certain cross-border tax arrangements. DAC 6 came into effect on 25 June 2018. The reporting requirements for transactions from 25 June 2018 were due to come into effect on 1st July 2020. As we covered in our newsletter in May, the EU Commission announced a proposal for a Council Directive to extend the filing deadlines by three months. Reports for arrangements entered into from 25 June 2018 to 30 June 2020 which would have been due by 31 August 2020 were deferred to 30th November 2020. On 24th June the EU announced `an amendment to the amendment extending the possible extension to six months, so that for arrangements where the first step in the implementation took place between 25 June 2018 and 30 June 2020, reports must be made by 28 February 2021, instead of by 31 August as originally required.
On 25th June, HMRC announced that the UK would be applying the six month extension.
You can read the EU announcement here and the HMRC provisions from the HMRC manual here.
Real estate funds and the referendum, four years on
To mark the fourth anniversary of the result of the EU referendum and the market issues for open ended real estate funds that resulted, John wrote a bit of a blog about it on 24th June. You can find it here.
A nerdy accounting issue for property funds
Authorised funds and some other funds in accordance with their fund documents are required to distribute all their income. Widespread rent holidays and rent deferrals will have a much greater impact on available cash than on accounting income where the effect will be spread. Funds may have a requirement to distribution but have insufficient cash.
John chaired an Association of Real Estate Funds (AREF) virtual meeting of accountants at fund managers, auditors, lawyers and others on 23rd June to reach a consensus as to the treatment.
You can read about it on the AREF website here.
Some webinars on which John has appeared
Please find below materials from webinars since our previous newsletter.
Discussion on the merits of a proposed UK Professional Investor Fund
We have been covering the proposal for a UK Professional Investor Fund in our newsletters.
John spoke on this webinar hosted by Ocorian. You can download the recording here.
Following the concern raised by John on the webinar on the investor eligibility conditions, AREF has made minor amendments to the PIF proposals on 23rd June. You can find an update from AREF here.
The attractiveness of the PIF will depend heavily on the detailed rules when they appear. We will continue to lobby for as much flexibility as possible.
AREF/ INREV Open End Fund Pricing Project Briefing Webinar
John has been part of the group working on this phase 2 consultation and presented on the consultation webinar which took place on 18th June. AREF and INREV members can find the recording and the consultation materials here.
Members of INREV and AREF are invited to provide feedback by 22 July 2020.
ICAEW seminar - Covid 19 and real estate investment management
John spoke on this seminar, which was part of the Institute of Chartered Accountants in England and Wales Construction & Real Estate Community programme. A recording is on the Construction & Real Estate Community page here.
AREF Webinar: COVID Forum #6 "The Road to Recovery"
The sixth and final webinar of this series that John has chaired took place on 30th June.
Thank you to the panelists:
- Mark Bunney, Head of Indirect Property Team, Kames Capital
- Zeynep Fetvaci, Director Corporate Finance - Global Funds Advisory at Jones Lang LaSalle
- Karen Fox, Fund Manager, Kames Capital
- Naomi Green, Fund Manager, Schroders
You can find the recording, plus some other materials referred to in the webinar on the AREF website here.
You can the whole series on our website here.
Details of forthcoming webinars at which John is speaking are below.
Institute and Faculty of Actuaries webinar - Challenges of including illiquids in DC Pension Funds
9th July, 3pm
John will be speaking on this webinar. Details and registration here.
AREF Webinar: Member Discussion on Industry Consultation ‘ESA’s ESG Disclosure'
16th July, 10.15am
John will be moderating this webinar. Details and registration here.
London Stock Exchange Investment Fund Conference 2020
John will be speaking about real estate funds at this conference, which has been postponed until 4th September. It is now to be run online. You can find details and register here.
Historical trivia - ancestral misdemeanours
In view of so many others acknowledging historical activities by ancestors that may no longer meet current standards of behaviour, John feels it important to confess that the Forbes invaded Germany in 1630. We can only apologise to our German readers. In our defence:
a) The King of Sweden paid us to do it;
b) We were not on our own. The export of mercenaries was Scotland’s main source of foreign income in the first half of the 17th century, with possibly 20% of the adult male population away fighting in other people’s wars at one point. James VI and I had made the clan chieftains end blood feuds and make peace with each other. After the Forbes and the Gordons had to stop killing each other as part of this, attention turned to the cross border opportunities that opened up with the Thirty Years War. Mercenaries earned ongoing fees and carried interest (anything of interest that you could carry from the town you just captured).
The five legitimate sons, plus one illegitimate one, of the tenth Lord Forbes and 800 men (or at least that is what Lord Forbes promised) joined their kin, the Mackay, in 1626 to fight for the King of Denmark. They switched to a more lucrative contract with Gustavus Adolphus of Sweden in 1630, under which they invaded Germany. They featured prominently at Stettin, Memmingen (where the arrival of the Scots mercenaries is still tastefully re-enacted) and Lützen (where Gustavus Adolphus was killed, unfortunately in arrears on payments to the Scots). Apart from the fact that the local German artist thought that we were Irish, this seems to be an accurate representation:
Although it is slightly difficult to make out, the banner in the background may be the Forbes armorial bearings.
The original description in German includes the rather splendid, "They are a strong and hardy people who survive on little food. If they have no bread, they eat roots”. Whilst in Denmark, they also discovered Danish beer - a “Danish official asserted that the Scots, when on leave, were inclined to stay too long in the public-houses and became rather unruly. He insisted that they should return to their quarters instead of carousing for five or six days, as well as failing to settle the reckoning”.