UK: implementing the new framework for insurance special purpose vehicles

Last November HM Treasury published for public comment the Regulations that will introduce the new regulatory and tax framework for insurance special purpose vehicles (ISPVs), also known as insurance linked securities vehicles. The comments have been considered and HM Treasury's response was published earlier this month: see here (pdf). Final Regulations (subject to Parliamentary approval) have also been published: see the Risk Transformation Regulations 2017 (pdf) and the Risk Transformation (Tax) Regulations 2017 (pdf). The Prudential Regulation Authority has also published an update on its related consultation concerning the authorisation and supervision of ISPVs: see here (pdf).

HM Treasury have decided that a protected cell company structure should be provided for multi-arrangement ISPVs. The duties of directors of protected cell companies will largely be the same as for directors under the Companies Act 2006.  However, additional duties will be owed and section 172 of the 2006 Act will apply in modified form: the Risk Transformation Regulations 2017 explain that the reference in section 172(1)(f) to members should be regarded as a reference to shareholders and that the need to act fairly between shareholders of the protected cell company should be separately assessed for each part of the protected cell company.

The Regulations also provide for the powers of directors: they have such powers as (a) are necessary to fulfil their duties; or (b) are conferred upon them by the protected cell company’s instrument of incorporation.

Singapore: MAS consults on the introduction of a new corporate structure - the variable capital company

Last month the Monetary Authority of Singapore began a consultation on the legal framework for a new corporate structure for collective investment schemes: the variable capital company. These new companies will have their own legal framework, set out in the Singapore Variable Capital Companies Act, and will have the ability to create sub-funds with segregated assets and liabilities. Directors will be subject to a fit and proper persons test. For further information, see the consultation paper (here, pdf) and the draft Variable Capital Companies Act (here, pdf).

UK: HM Treasury consultation - the framework for insurance special purpose vehicles and protected cell companies

HM Treasury has published a consultation paper in which it sets out the key features of the proposed new framework for insurance special purpose vehicles (ISPVs): see here (pdf). Chapter four explores the corporate structure for ISPVs, and explains that the Treasury proposes to amend companies and insolvency law to allow for the creation of protected cell companies, thereby permitting pools of assets and liabilities - cells - to be segregated within the company. The protected cell company would have separate legal personality but the cells within it would not have legal personality as they do in some jurisdictions where they are known as incorporated cell companies (see, e.g., Guernsey and the Companies (Guernsey) Law, 2008; and the Isle of Man and the Incorporated Cell Companies Act 2010 [pdf]). The Treasury states that it is not proposing to introduce incorporated cell companies in the UK, but may reconsider if there is demand.

Under the proposed UK regime, a new cell within the protected cell company would be created by board resolution. The duties of directors would be the same as those for companies incorporated under the Companies Act 2006 and the Company Directors Disqualification Act 1986 would apply to directors of protected cell companies. The other chapters in the consultation paper consider the taxation of ISPVs and their authorisation and supervision by the Prudential Regulation Authority and the Financial Conduct Authority. The PRA is expected to publish a supervisory statement with further information on the authorisation process by the middle of the year.

UK: consultation on introducing a protected cell regime for OEICs - Law Society response

Earlier this year HM Treasury published a consultation paper containing proposals for the introduction of a protected cell regime for open-ended investment companies (OEICs). The Law Society has published its response, in which it states:

We welcome the Government’s intention to proceed to implement a protected cell regime for OEICs. We are, however, disappointed with the way in which the Government proposes to implement its proposal. We believe that the proposals are flawed and will create uncertainty".

UK: introducing a protected cell regime for OEICs - HM Treasury consultation

HM Treasury have published a consultation paper containing proposals for the introduction of a protected cell regime for open-ended investment companies (OEICs). These changes were suggested in 2007 in a consultation on better regulation measures for the asset management sector. In the consultation paper published this week, which contains a draft of the Open-Ended Investment Companies (Amendment) (No. 2) Regulations 2009, HM Treasury explains (paras. 2.1 and 2.1): 

OEICs are investment funds structured as bodies corporate. Large fund managers generally operate a small number of OEIC umbrella companies with a large number of sub-funds within each umbrella, allowing them to operate a large range of funds more efficiently. The sub-funds do not have a separate legal personality, but are separately managed, charged, accounted for and assessed for tax. Under current law there is no segregation of liabilities between different sub-funds. For example, if an umbrella fund contained one cautious UK bond fund and one high-risk Far-east equity fund and the Far-East equity fund collapsed with liabilities exceeding its assets, creditors could have a claim on the assets of the UK bond fund. Investors in the cautious fund therefore bear some of the risk of the riskier fund.

In practice the probability of an OEIC collapse is small, as OEICs must comply with borrowing limits imposed by the FSA, but not zero. Current FSA rules require disclosure of the contagion risk in the fund prospectus and periodic reports, although there is a danger that some OEIC investors do not fully understand it. Thus, provided adequate protection of existing creditors can also be achieved, segregating liabilities so that the liabilities of any one sub-fund could only be met out of the assets of that sub-fund appeared desirable".