Letter from Brussels and London

In the wake of Brexit, UK policy makers have been reviewing EU rules on their books with a view toward making the UK a more attractive fund and investment manager domicile. As a result, in the past year we have seen a number of policy initiatives coming from the UK as they review and update their regulatory approach to the financial sector, including the real estate sector. 

The INREV Public Affairs team has had to broaden our coverage beyond Brussels and focus on policy proposals emanating from London as well. We’ve been monitoring and responding to numerous UK government initiatives such as the UK Funds Review, which has already resulted in the introduction of the Long Term Asset Fund, or LTAF, and non-listed UK REITs as well as consideration of improvements to the tax treatment of asset holding companies (AHCs) in the UK. Another promising result of the review is consideration of introducing the Professional Investor Fund, or PIF, a closed-ended structure contractual scheme for professional investors only.  

Another promising result of the review is consideration of introducing the Professional Investor Fund, or PIF, a closed-ended structure contractual scheme for professional investors only. 

The UK Re-domiciliation consultation for corporates is another interesting initiative. In response to that consultation, to create more commercial flexibility, we recommended the introduction of both an inward and outward re-domiciliation regime that could be extended to non-corporates in the future that is as flexible and tax-efficient as possible. After the first round of consultations, in a promising move, additional input on the ideas is being requested. 

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As sustainability issues have become increasingly important, we also responded to the FCA’s discussion paper on Sustainability Disclosure Requirements (SDR) advocating detailed disclosures at entity and product level and encouraging harmonisation among ESG regulations to ensure consistency, especially with the EU SFDR. We also helped develop a proposal to the FCA on ESG metrics for real estate together with several other real estate associations.

At the moment we are also engaged with the UK government review of Solvency II, which provides an opportunity to challenge the current 25% standard model Solvency Capital Requirements (SCR) for real estate based on arguments we’ve made for some time that the data used to measure volatility of real estate investment that underpins the SCR is not based on the best data available. The market adjustment and volatility dampener for real estate, the benefits of diversification within portfolios and the suitability of using a one-year downside volatility window for long-term assets , are also being explored and are areas of potential reform. Policy makers’ concerns about how insurers’ capital could be useful for funding the real economy and green transition are driving many of the issues under consideration and offer hope for some helpful changes to the rules.   

At the moment we are also engaged with the UK government review of Solvency II, which provides an opportunity to challenge the current 25% standard model Solvency Capital Requirements (SCR) for real estate based on arguments we’ve made for some time that the data used to measure volatility of real estate investment that underpins the SCR is not based on the best data available.

Together, these initiatives are an opportunity to make the UK a more attractive domicile and create choices for real estate investors and investment managers. To support our engagement in UK regulatory issues, we’re expanding the Public Affairs team by hiring an associate to help monitor and respond to UK policy initiatives.