Regulatory Briefing to Members SAVCA Regulatory Sub-Committee 29 September 2015

Transcription

1 Regulatory Briefing to Members SAVCA Regulatory Sub-Committee 29 September 2015

2 Agenda Regulation/FSB/Other 1.1 FSB: FAIS Richard Flett 8 minutes 1.2 NT: Draft Retirement Reform Richard Flett 8 AIFMD J-P Fourie 5 Taxation Policy/ National Treasury 3.1 Section 23N, 23M Craig Dreyer Section 8C Income Tax Act Craig Dreyer Trusts (Davis Commission) Richard Flett 8 Tax and other reporting, to SARS and others 4.1 DWT & IWT Craig Dreyer FATCA & CRS Richard Flett 8 BEE: DTI codes and FSC Codes Danny Hatfield 15 Competition Regulation (SA and COMESA) Shawn van der Meulen 8

3 2015 Regulatory Briefing FAIS Licensing Richard Flett

4 New License Category for Private Equity Timeline June 2011: New license category mooted by FSB for PE fund managers following issues with pension fund regulator around investment by SA pension funds Dec 2011: SAVCA drafted and submitted a specific Code of Conduct (CoC) to the FSB for consideration May 2012: FSB s target date for implementation of new CoC (stated Jan 2012) Nov 2013: Meeting held with new FAIS registrar; project re-invigorated Mar 2014: FSB proposed a completely redrafted CoC for SAVCA s consideration June 2014: SAVCA submitted an extensive mark-up Mar 2015: New draft finally received from FSB; many of SAVCA s earlier amendments rejected some new rules added, borrowed from the EU s AIFMD Creeping tendency toward regulating the fund, not the manager May 2015: SAVCA submitted an extensive mark-up

5 What s in The Latest Draft? New Principles Establishes separate risk management function and risk limits for each fund Definitions, ambit and purpose unclear Functional and hierarchical separation difficult for smaller managers Disclosure of aggregate Manco staff remuneration & policies to investors Open Issues Which entities must be licensed: GP/Trustee or Manco, or both? S13(1)(c) issues with appointing the GP/Trustee as Representative of Manco SAVCA has asked FSB to consider group licensing and/or compliance reporting Unclear if financial advice is included Some managers may still want/need a Cat I license FAIS Fit & Proper requirements: academic qualifications, experience, regulatory exams, solvency & liquidity Grandfathering of existing PE funds

6 Interim Exemptions SAVCA successfully lobbied the FSB to extend Cat II exemptions by one year and grant a S13(1)(c) exemption Categ ory Exemption New Expiration Date FSB Notice Registration Required I & II Level 1 regulatory exams No expiry (to be determined by Registrar) II II S5(1)(c) Existing fund mandate must contain a statement on risk S5(1)(j) - 60 day notice for mandate cancellation II S9(4)(c) - FSP s liquid assets > 8/52 annual opex I & II S13(1)(c) - Juristic Rep cannot contract or render financial services in its own name No expiry BN102 of 2012 FN71 of 2015 Yes Yes No expiry Idem Yes 30 June 2016 Idem Yes 30 June 2016 FN70 of 2015 Yes

7 Twin Peaks Establishes two regulators to oversee banking, insurance, financial services: Prudential regulation: SARB Market conduct regulation: FSCA (Financial Sector Conduct Authority) Second draft of Financial Sector Regulation (FSR) bill published Dec 2014 SAVCA provided comments to NT in Feb 2015 requesting: A distinction be drawn between retail and institutional/sophisticated investors A lighter touch regime for PE fund managers servicing institutional investors FAIS regulations likely to become standards under Twin Peaks New CoC for PE fund mangers would therefore be incorporated Existing FAIS licenses should roll over into the new regime Unclear if PE/VC fund will also be regulated bill references pooled funds Introduction timing uncertain

8 2015 Regulatory Briefing PFA Draft Retirement Reform Richard Flett

9 Default Investment Portfolio Regulations July 2015: NT issued draft default regulations for public comment by 30 September Will oblige retirement fund trustees to offer a default investment portfolio to the fund s members: Regulation 37: Default Investment Portfolio Regulation 38: Default Preservation & Portability Regulation 39: Default Annuity Policy Members can opt out from the default option in writing, but how many will? SAVCA currently preparing a response on principal concerns

10 Three Principal Concerns for PE Reg 37(2)(h): no service provider (may) receive fees or charges in respect of the assets held in respect of the default investment portfolio that depend on the return earned in respect of those assets Is carried interest considered a performance fee? Reg 37(2)(k): members may instruct the fund to transfer their retirement savings from the default investment portfolio into any other investment portfolios.at intervals not exceeding three (3) calendar months Will this restrict a default portfolio from investing in illiquid assets? Reg 37(2)(d): all fees and charges, whether borne directly by the fund or paid directly or indirectly out of assets.as well as the impact that such fees and charges will have on members actual and prospective benefits, are disclosed on a regular basis to members ; Who will do this? Will trustees want to include PE funds if the admin burden is excessive?

11 2015 Regulatory Briefing AIFMD J-P Fourie

12 AIFMD No major progress since details presented last year In quick update: FSB now willing to issue assentation letters, as required by some country specific AIFMD requirements, these letters are issued by the FSB directly to the EU regulator concerned and confirm that the FSB it is able to effectively comply with the cooperation agreement between that FSB/NT and the local EU regulator concerned EU regular, ESMA, has not made significant progress on third country passport approvals only approved Guernsey and Jersey, awaiting final approval of Switzerland and have declined USA, Hong Kong and Singapore SAVCA members raising commitments from the EU still hence need to apply and comply with the country specific AIFMD specific regulations (National Private Placement Regimes)

13 2015 Regulatory Briefing Section 23N, 23M Craig Dreyer

14 Section 23N: Limitation of interest deduction in portfolio companies Caused by debt directly or indirectly funding purchase of asset in terms of a re-organisation An acquisition transaction S45: inter group transaction S47: liquidation Also applies if debt is re-financed This presentation does not constitute tax advice, but is intended to create awareness of various topics.

15 Section 23N: Limitation of interest deduction in portfolio companies Limitation starts from date of re-organisation or acquisition or debt re-finance for next 5 years Arrive at adjusted income: Say adjusted income is R400 40% limitation 160 Plus interest received/accrued 20 Less interest paid (non-s23n debt) (40) Interest deduction limitation on S23N debt R140

16 Section 23N: Limitation of interest deduction in portfolio companies Adjusted income attempts to take you to EBITDA; adjusts for interest received, paid, depreciation of assets Indexing adjustment is available which increases the 40% deduction as repo rate increases A= B x C/D B= 40 C= Average Repo Rate D= 10 A is limited to 60% If all the interest under S23N investments is not claimable, you can t carry forward disallowed amount SAVCA lobbying with National Treasury in this respect

17 Section 23M Limitation in respect of Debts Owed to Pension not subject to tax Effective January 2015 Limited amount of interest deduction that is payable to non-resident if Creditor is in a controlling relationship with debtor Creditor obtained funding from person in controlling relationship with the debtor And interest is not taxed in SA Use same formula as S23N Note: Here disallowed interest is carried forward

18 2015 Regulatory Briefing Section 8C Income Tax Act Craig Dreyer

19 Section 8(c) Taxation of Directors and Employees on Vesting of Equity Instruments Effective post October (c) is triggered by the vesting of an equity instrument Applies to gains and losses made by tax payer in respect of: The vesting Of an equity instrument Which was acquired by tax payer By virtue of employment The equity instrument vests in the case of restricted equity instrument, when the earlier of: When all restrictions cease Before tax payer disposes of instrument The gain or loss is a revenue gain or loss and not a capital one Watch Outs: Private Equity carry vehicles may have vesting arrangements Portfolio company management SPV may have vesting arrangements

20 2015 Regulatory Briefing Davis Tax Committee Richard Flett

21 Proposed Changes To Trust Taxation DTC issued First Interim Report on Estate Duty in July for public comment by 30 September. Proposed reforms include a heavy attack on trusts Local trusts: removal of conduit principle, all income & gains to be taxed in trust Offshore trusts: all distributions to SA residents to be taxed as income No distinction drawn between vesting, bewind and discretionary trusts Would severely impact trusts used as PE fund vehicles, co-investment vehicles, carry vehicles SAVCA submitted comments 16 September requesting that conduit principle be retained for vested local trusts, or failing that A 10 year exemption be granted for existing vested trusts, or failing that A period of transition until 1st March 2018 be allowed to restructure existing trusts

22 2015 Regulatory Briefing DWT & IWT Craig Dreyer

23 Dividend Withholding Tax Dividends paid by SA company must have withholding tax of 15% deducted if paid to: An individual A trust A foreign person/entity Withholding tax can be deducted by intermediary (subject to rules) Tax paid to SARS in next month Declaration form on exempt status of shareholder to be passed to entity doing withholding Entity withholding must report per DTR01 Dividends Tax Return on efiling Reporting done per shareholder. DTR02 form self generated. Need to submit both forms. Consider impact of DTAs and possible exemptions 64K(8) provides that any person who is involved in management of financial affairs of an unlisted company that is liable to withhold dividends tax is personally liable for said tax plus penalties and interest

24 Interest Withholding Tax Effective 1 March % withholding tax Paid to foreign person (i.e. not registered for tax in SA) Withholding is date of interest payment and not accrued date Several exemptions, including interest paid on listed debt Declaration forms need to be completed by interest recipient and passed to entity who withholds tax i.e. stating exempt status Entity doing withholding to file WT002 form via efiling Requirement to submit IT3s Penalties for non-compliance Effect on DTAs and exemptions Problems determining beneficial owner per DTA i.e. nonresident partnerships, fund of funds

25 2015 Regulatory Briefing FATCA & CRS Richard Flett

26 FATCA RSA-USA IGA finally gazetted 13 Feb 2015, entry into force 28 Oct All SA fund managers should by now have registered on IRS portal and filed an initial report for eight months to 28 Feb 2015 Next report due by 31 May 2016 for y/e 28 Feb 2016 Reportable data includes: Demographic data of US based investors (account holders) Account balances, interest, dividends, gross proceeds from sale of financial assets SARS only accepting reports via 3rd party data submission channels in prescribed formats: No efiling No paper submissions Service providers have developed solutions to convert Excel based data into the required format and handle submission to SARS for a fee SARS insisting on nil returns even when there are no reportable accounts : SARS kindly made available a simplified nil return procedure Workshop held for SAVCA members in June

27 CRS (Common Reporting Standard) FATCA on steroids Multilateral agreement developed by the G20 & OECD Over 100 jurisdictions already signed up (notable exception: USA) Requires automatic exchange annually of non-resident account holder information between tax authorities of participating countries Specific KYC due diligence procedures required, not entirely aligned with either FATCA or FICA Reportable data similar to FATCA Demographic data of foreign account holders Account balances, interest, dividends, gross proceeds from sale of financial assets But also TIN number from account holder s country of residence Not clear which entity has to report: Advisor or GP/Trustee or Fund No sponsor regime as per FATCA

28 South African Implementation Enabling legislation going to parliament in October First report covering 1 Mar 2016 to 28 Feb 2017 due by Sep 2017 Very little guidance issued by SARS so far BRS in development, based on existing FATCA BRS More PE funds will have reportable accounts under CRS than under FATCA due to inclusion of European & Asian investors Data submission challenges exactly the same as for FATCA Some kind of technology solution will be needed, possibly from the same service providers who are introducing FATCA reporting solutions

29 2015 Regulatory Briefing B-BBEE (FSC) Update Daniel Hatfield

30 How did we get to this point? The current FSC Charter alignment process comes at the end of a long history of proactive transformation by the sector, starting in 2004 FSC released under section 9(1) Oct applicable from 2013 Generic code Revised released in final form Oct 2013 live from May 2015 Alignment of FSC to generic code by Oct 2015 changes to be applicable from Jan 2016

31 What is SAVCA s role in the FSC Council? Although only an Associate member, SAVCA has been able to have significant influence on the FSC Charter alignment process SAVCA is an Associate member to the FSC Council No seat on the FSC Council Representation on any FSC Reporting Working Committees ( RWC ) e.g. Charter RWC participation enables us to: Table proposals for change in the Charter alignment process Debate / discuss any other constituency proposals Put forward a draft FSC for approval by council for submission to the Minister of Finance

32 What are the differences to the old FSC? The priority pillars, weightings and targets will be largely in line with the current generic Codes OLD FSC NEW DTI SUGGESTED NEW FSC ELEMENT Life offices Short Term and banks Insurers AM & Other BONUS POINTS Life BONUS Main offices POINTS and banks Short Term Insurers PE, AM & Other Bonus points all OWNERSHIP MANAGENT CONTROL EMPLOYMENT EQUITY SKILLS DEVELOPMENT PROCUREMENT ENTERPRISE & SUPPLIER (9) DEVELOPMENT EMPOWERMENT FINANCING (0) (INCLUDES SD) ACCESS SOCIO ECONOMIC DEVELOPMENT Priority elements

33 What have been our wins? We have achieved a number of good outcomes for the SAVCA members (both PE Funds & Impact investors) and for transformation in general General (All): Inclusion of SAVCA members within the ambit of the FSC Alignment of the Qualifying Small Financial Institution definition with the QSE (R50m turnover) Private Equity structures (PE Investors): 25% ownership threshold measured post investment (not pre) Aligning the use the Modified Flow Through principle to the Generic Codes Time to ramp up the portfolio to 50% > 25% black owned Ensuring the entity where the majority of economic interest and decisioning resides is the entity rated for Black Ownership Enterprise & Supplier Development (Impact Investors): Only divide grant based programmes (not funding) by the number of years that the programme runs Clarify that an Supplier Development beneficiary is a sub set of Enterprise Development beneficiaries Cap the amount of bad debt write-offs that can be used for ED grant portion Standard interest rate lending should not qualify as Supplier Development funding Increasing turnover thresholds for SMEs being grown through ESD

34 What are the key outstanding issues? There are essentially 8 outstanding issues that the RWC is looking to resolve by mid-october 2015 The five matters still to be addressed by the RWC: Private Equity ownership definition Turnover threshold for SMEs Lending rates for the SD recoverable spend Management Control EAP formula methodology Empowering Supplier definition The three matters still to be addressed by the Trade Associations and ABSIP, via the bilateral process: Empowerment Financing targets Once Empowered Always Empowered (OEAE) principle Risk Capital Fund

35 What are the time-frames? The final FSC is not likely to be gazetted before March 2016, with the measurement thereof likely to kick-off almost immediately thereafter Address outstanding issues through bi-laterals (RWC: mid-oct) Finalise FSC draft (RWC: end-oct) Approval by council and submission to minister (FSC: end-oct) Agreement on draft for 9(5) gazetting (Ministry & DTI: end-nov) Publishing for public comment (DTI: end Nov) Public comment consolidation and development of final draft (RWC: end-feb) Approval by council and submission to minister (end-feb) Publishing 9(1) gazette (DTi: end-mar)

36 What does this mean for SAVCA members? Start working on the priority pillars anticipating that from 2016 your business will be governed by the revised FSC Going forward, look to get a rating agency that understands the FSC (& can rate you accordingly) Prepare yourself to get rated on the new FSC if your financial year ends post 28 Feb 2016 If transformation is important to your business start working on the priority pillars (using the generic Codes as a guideline) Ownership, Skills development, Enterprise & Supplier Development, Procurement Once the new PE structure ownership clause is finalised, work to understand effect on your structures

37 2015 Regulatory Briefing COMESA Competition Commission Shawn van der Meulen

38 CCC - update COMESA covers 19 member states Merger guidelines have been in force since 14 January 2013: There was no minimum threshold Filing fees were high Amendments brought in 8 April 2015

39 CCC the amendments Where both the acquiring firm and the target firm, or either the acquiring firm or the target firm, operate in two or more COMESA Member States, a merger is notifiable if: the combined annual turnover or combined value of assets, whichever is higher, in COMESA of all parties to a merger equals or exceeds USD50m; and the annual turnover or value of assets, whichever is higher, in COMESA of each of at least two of the parties to a merger equals or exceeds USD10m, unless each of the parties to a merger achieves at least two-thirds of its aggregate turnover or assets in COMESA within one and the same COMESA Member State. The maximum filing fee has been substantially reduced the filing fee is now the higher of 0.1% of the combined annual turnover or combined asset value in COMESA, capped at a maximum of USD 200,000.

40 Thank you