Fides Weekly Update – 19th August 2016

Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.

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1. Lawyers sweat over Government proposed fines for Tax advisers 

Proposals released by HM Revenue & Customs (HMRC) to strengthen tax avoidance sanctions and deterrents have been met with criticism by City partners.

Aimed to target the “enablers” of tax avoidance, such as bankers, accountants and lawyers, the proposals suggest up to a 100 per cent fine of the amount of tax avoided for those professionally involved in any tax avoidance scheme later defeated by HMRC in court. The document also suggests reversing the burden of proof that currently rests with HMRC to make it easier to gather evidence when prosecuting tax avoidance schemes.

With tax avoidance costing the UK public an estimated £2.7bn annually, the consultation aims to extend the risk from tax avoiders themselves (who already face significant financial costs) to those who advise on or facilitate the avoidance, who will also face being named to “alert and protect taxpayers.”

However, with a full framework of tax avoidance sanctions expected to be developed in the next stage of the consultation, current proposals have been criticised for their lack of clarity in several areas, including what constitutes “defeat” and the question of how HMRC would distinguish between tax avoidance and routine tax planning carried out by mainstream accountancy and law firms.

Whilst acknowledging that the proposals would act as a deterrent, Richard Woolich UK head of tax at DLA Piper highlighted the risk that insurance companies would up premiums for professional indemnity insurance for Private Client and Tax partners doing this type of work.

On the other hand, head of tax investigations at Pinsent Masons Fiona Fernie flagged concerns that the definitions in the proposals were “too broad” and that there was nothing in the document to stop the sanctions being applied retrospectively.

There is also the question as to what happens when a client decides to participate in a tax avoidance scheme despite of the risks involved, and whether the adviser would be liable to any fines in this instance.

This marks the latest attempt by HMRC to make life more uncomfortable for those who use or market tax avoidance schemes following Prime Minister’s Theresa May’s pledge to clamp down on corporate tax avoidance last month.

With a number of UK law firms being implicated with the fall out of the Panama Papers detailing the avoidance of Tax from Panamanian law firm Mossack Fonseca, HMRC’s new proposals show how the focus on the implication of tax avoidance is shifting from banks to law firms and accountants.

2. Are clearing houses a “new source of too-big-to-fail risk”? 

Global regulators have raised their concerns regarding derivatives clearing houses by publishing a discussion note this week, claiming there may be failings in their risk-management and recovery practices.

The Financial Stability Board (FSB) – joining forces with the Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructures, and the International Organization of Securities Commissions – coordinated a plan to reassess whether central counterparties (CCPs), or clearing houses, could withstand the stresses of another financial crash.

Authorities are trying to shift a lot of the risk management involved in over-the-counter derivatives transactions from banks to clearing houses, which will make them a much more dependent part of transactions process. The FSB are addressing a number of concerns over resolution planning, such as when authorities should step in to take control and how resources should be allocated during the resolution process. They are primarily gauging if widespread market failings were to occur, would they be resilient enough to withstand this and if they have sufficient safeguards in place.

One aspect the regulators are examining is the liquidity reserves held by clearing houses. The discussion notes highlight the importance of retaining sufficient resources to “absorb losses and to replenish the CCP’s…financial resources”. It is now critical to hold these capital buffers, with CCPs sitting more centric in the new financial services infrastructure – if a major clearing house were to default in the future, it would likely lead to systemic damage to the global financial system.

The FSB, chaired by Bank of England governor Mark Carney, are also developing a common system to stress-test CCPs, ensuring clearing houses aren’t effectively carrying out their resolution strategies.

The discussion note has asked for comments on these queries by market participants, requesting all comments to be delivered by 17th October. The FSB will subsequently propose further guidance on resolution planning in early 2017.

Movers & Shakers of the week 

Appointments

New GC for African Development Bank 
The African Development Bank has named N’Garnim-Ganga as its next general counsel, leaving her current position as representative of the bank in Mali

Moves

Irwin Mitchell loses five partners in London 
Irwin Mitchell’s London real estate head Rob Thompson and fellow real estate partners Lewis Myers, Rupert Dowdell and Jayne Schnider all join Dentons’ real estate practice, whilst London planning and infrastructure head Martha Grekos moves to Howard Kennedy.

HSF strengthens Düsseldorf office with magic circle hire 
Corporate partner Christoph Nawroth departs Freshfields Bruckhaus Deringer, where he served as co-head of the sub-sector global power and utilities group, and infrastructure funds group. He joins Herbert Smith Freehills’ Düsseldorf office.

Datalogic secure new GC
Data business Datalogic has hired Raffaele Zucca as its new global general counsel. He previously worked at technology company Denso as its Europe GC

Eversheds loses COO and finance director 
Kathyrn Fleming, COO and finance director at Eversheds, will be leaving the firm next year, with her next steps unknown

Dechert hires finance partner duo from DLA
Finance partners Philip Butler and David Miles leave DLA Piper to join Dechert in London

Office Openings & Closings

White & Cases closes its offices in Turkey and Kazakhstan

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