Fund managers face forthcoming limited partnerships reform - Thistle Initiatives

What happened?
Fund managers will need to alter their existing practices to comply with reforms to UK limited partnership laws that are likely to be introduced in 2019. The new framework will require fund managers seeking to set up as an LP to meet AML registration requirements, maintain an ongoing connection to the UK and satisfy additional disclosure obligations.

In the spring of 2018, the Department for Business, Energy and Industrial Strategy opened a consultation on proposed reforms to the legal framework for LPs in the UK after revealing that the National Crime Agency had identified a “disproportionately high volume” of suspected criminal activity involved Scottish LPs. In December 2018, the BEIS published its response to the earlier consultation it held on prospective reforms. The consultation dealt with four areas:

• registration requirements
• principal place of business
• reporting and transparency
• strike-off provisions

The UK Government intends to make it mandatory for presenters of new applications to establish LPs to demonstrate that they are registered with an anti-money laundering supervisory body. Evidence of this will need to be included in the application form to register an LP. The Government will seek to ensure that applications from overseas will be subject to equivalent standards and is considering options to achieve this.

To demonstrate a connection with the UK, an LP will now need, on its application for formation, to provide a proposed principal place of business in the UK – as is the case now – and, on an ongoing basis, satisfy any of the following:

• retaining its principal place of business in the UK
• demonstrating that it is continuing a legitimate business activity at an address in the UK
• demonstrating that it continues to engage the services of an agent that is registered with a UK AML supervisory body and which has agreed to provide its address as a service address for the LP

The Government has moved away from necessarily requiring an ongoing principal place of business in the UK, which would have ended the common practice of establishing private funds as LPs in the UK before ‘migrating’ their principal place of business elsewhere. In its response to the consultation, the Government also proposed to:

• close any gaps in existing legislation so as to require all LPs to file basic accounts “in a way that is not burdensome or duplicative”
• require LPs to file an annual confirmation statement on LP information, bringing LPs registered in England and Wales and those in Northern Ireland in line with LPs in Scotland
• expand the information currently required on applications for registration – in future, this will require contact information for all limited and general partners, the date of birth and nationality of all limited and general partners that are natural persons and a Standard Industrial Classification code identifying the nature of the LP’s business
• undertake further work to explore whether to require beneficial ownership information from corporate partners that do not already hold a ‘people with significant control'(PSC) register
• introduce a transitional period and a mechanism to enable all existing UK LPs to submit the additional information required.

The Government has also proposed to introduce a mechanism to allow LPs to be struck off the register on dissolution or if they are not carrying on business.

Fund managers should monitor developments on the draft legislation and, at the appropriate time, may want to start a dialogue with their investors on the enhanced disclosure obligations.

The Government has proposed to introduce a mechanism to allow LPs to be struck off the register on dissolution or if they are not carrying on business. To safeguard against incorrect strike-offs, and a potential loss of limited liability for limited partners, the Government has stated that the procedure will be “at least as strong” as that in place for striking off companies.

The Government has not set out a timetable for the proposed changes, but has stated that it “would legislate when parliamentary time allows”. Earlier indications were that this would be during the course of 2019. Whilst the changes are unlikely to be overly burdensome, current practice will need to change and action will need to be taken for existing funds established as LPs in the UK to comply with the revised legislation, in particular in connection with ongoing transparency and disclosure requirements.

How Thistle can help you?
Thistle will continue to keep this area under review and will issue further updates where necessary. We do not advise on company or partnership formation issues. Visit our Financial Crime page and Investment page for more information on our services.