As the COVID-19 pandemic bites, it's a relief to see government authorities and regulators lessening the burden for fund managers.
The Coronavirus (COVID-19) pandemic has had an unprecedented impact on businesses, economies and individuals. But governments and regulators around the world have responded impressively – rolling out measures including those designed to help ensure business continuity for fund managers.
Lessons were learnt during the 2008 financial crisis and the world has evolved since, in terms of both technology and market infrastructure. As such, government authorities have been quick to put initiatives in place to feed markets and companies with liquidity, while regulatory bodies have announced measures to help ease the environment in which funds operate.
I want to shed some light on emergency regulatory changes implemented in two of Europe's dominant fund jurisdictions – Luxembourg and the Channel Islands. What do these changes mean for fund managers and the companies that operate in an already complex ecosystem that goes beyond fund and company: touching investors, customers, underlying special purpose vehicles (SPVs) and investments?
Organisational and governance measures
The European Securities and Markets Authority (ESMA) has advised financial market participants to apply contingency plans and ensure operational continuity, disclosing relevant and significant information concerning COVID-19's impact on the fundamentals, prospects and financial situation. It has stressed the need to provide transparency concerning both the pandemic's actual and potential impact on activities and performance.
In response, the Jersey Financial Services Commission (JFSC) now requires immediate confirmation from businesses that sufficient remote working measures are in place, allowing continuous operations while being able to meet all regulatory obligations. The Jersey government has declared that only essential workers can work outside their homes and travel for the purpose of work. Regulated businesses are being contacted by email to provide confirmation of their key contact person, and to receive certification for essential employees who are critical to the ongoing functionality of the financial services to be able to access business premises where required.
Luxembourg's financial regulator, Commission de Surveillance du Secteur Financier (CSSF), has also been proactive in providing guidelines and support on an ongoing basis. As well as endorsing the business continuity (BCP) measures for supervised entities, promoting remote working and remaining attentive to fraud and IT security risks, it has also extended the deadline for the annual online AML/KYC surveys from 15 March 2020 to 10 April 2020. This gives busy professionals under the supervision of the CSSF extra time to focus on more urgent matters, such as employee health, day-to-day operations and managing investments.
Financial filings
The ESMA and European Banking Authority (EBA) issued a statement on the accounting implications with regard to the economic support and relief measures adopted by EU member states in response to the pandemic.
The Guernsey Financial Services Commission (GFSC) has given firms more time to complete key financial returns. For example, the deadline for insurers, investment firms, funds and fiduciaries to file financial returns has been extended from the end of April 2020 to the end of May 2020, and they can be initially submitted unaudited. Audited versions of the financial returns need to follow by the end of October 2020. The GFSC has also agreed that sign-off for annual returns can be delayed.
The JFSC meanwhile has proposed capping late fees for company annual returns. Until the end of this year, Jersey companies filing annual returns late will only be subject to a one-off late fee of £55. The JFSC has also allowed more time to complete key financial returns and extended the deadline for audited financial submissions from 31 March 2020 to 31 July 2020, if a company is eligible, and upon request.
The Luxembourg Trade & Company Register (RCS) has provided companies with a very welcome four-month extension to file financial data, and the surcharge for late filing has been suspended. This will provide entities with more time to deal with the most pressing matters, such as day-to-day operations and board meetings.
Shareholder and board meetings
There's no doubt that more board meetings are required at the fund level as COVID-19 will significantly impact investment valuations and the performance of funds, whether those assets are real estate, private equity, private debt, infrastructure or venture capital.
In a welcome move, the Luxembourgish Grand Ducal Regulations, which govern special measures in relation to the organisation of meetings of shareholders, directors or other supervisors, introduced new measures this month that will be implemented immediately.
The measures state that a company may, notwithstanding any provision to the contrary in the articles of association, hold any general shareholder meeting without physical presence. Shareholders, partners and other participants can exercise their rights exclusively by remote voting, through an appointed agent or by telephone/video conference. Board meetings can also take place without physical presence, either via written circular resolutions or by telephone/video conference. Given social distancing measures throughout Europe, this is an important move – participants are no longer mandated to be there in person, but they can still comply with all governance duties.
With respect to economic substance, Jersey and Guernsey are aligned. Jersey's Minister for Treasury & Resources stated that where companies must adjust their operations to compensate for the COVID-19 outbreak, the Jersey Comptroller of Revenue will not determine that these companies have failed the economic substance test. This measure will only apply to changes from normal operating activities, though only to the extent they are required to mitigate the threats from the COVID-19 outbreak. The chief minister of Guernsey endorsed this approach. The GFSC acknowledged that under the current circumstances it may be necessary to make more use of alternate directors for some key meetings. The GFSC also understands that this may require the appointment of alternate directors to licensees at short notice. Helpfully, they have stated that where the proposed alternate director is already known to them as a director of the licensee's Designated Administrator, they will expedite their approval process in order to allow that alternate director to act.
Communication is key, especially in these uncertain times. In my opinion, fund managers should be communicating to their investors more than ever. I'd consider it a duty of care to update investors with the information needed to make informed decisions (in the case of an open-end fund) or to keep them informed at least if they are restricted to step out (closed-end funds). Fund managers who are managing funds that are near the end of the fund cycle should already be thinking about extending the lifetime of the fund. The investments will need time to stabilise.
Credit and tax
The Luxembourg Chamber of Commerce will provide a bank guarantee of up to 50% for financing requested by eligible companies, to a maximum of €250,000. The Luxembourg VAT authority (AED) has declared it won't apply administrative sanctions for late filing of VAT returns while reimbursing all positive balances up to €10,000.
The States of Guernsey is providing business support specifically aimed at ensuring businesses can retain staff and working capital. Any commitments to the States of Guernsey can be deferred for Q1 and Q2 of 2020. In turn, Jersey's government has advised companies to contact Jersey Business on any matters relating to payroll, tax and rental issues due to COVID-19.
Partner with TMF Group
It's not easy to track all emergency regulatory changes when they're updated daily, but working with TMF Group removes the burden. We provide a comprehensive suite of fund services, from fund administration and transfer agency to depositary and corporate secretary services, that allow fund managers to focus on managing the core business of the fund.
Our fund services facilitate global and cross-border investment operations through a network of over 80 offices – and some 7,800 experts – worldwide. This global footprint gives you unrivalled oversight and connectivity at a time of great economic uncertainty.
To help our clients navigate the fast-changing COVID-19 landscape, we are sharing expert insight into managing and mitigating risk, publishing regulatory news and other information about how to access local government support where it's available.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
