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Wealth Management

WHAT DOES LABOUR’S INCLUSIVE OWNERSHIP FUND MEAN FOR INVESTORS

By Ifty Nasir is co-founder and CEO of Vestd, the Share Scheme platform.

 

At the Labour Party Conference their Shadow Chancellor, John McDonnell, again referred to the party’s intention to introduce the ‘Inclusive Ownership Fund’.  If it comes into force, around 7,000 UK companies – those with more than 250 employees – will be forced to give workers a suggested maximum 10% ‘stake’ in the company they work for.

The Labour Party are presenting the scheme as an effective way of handing equity and power to the workers, but all it will actually do is destroy value for investors and does a great disservice to the benefits of truly sharing ownership, a powerful device that many thousands of UK companies already deploy.

 

What is the IOF Share Ownership Model?

Employees won’t really own anything, because shares in an IOF cannot be sold. They will not therefore benefit from the capital appreciation in ‘their’ equity, and worse, their slice of profits is capped at just £500 per employee.

This is nothing like the John Lewis model, where employees are truly partners, under IOF people would only get partial rights to dividends – a share of artificially capped profits.

If profits are higher than £500 then the government will claim the difference. This will be a significant money grab by the Government as most of the profitable FTSE 100 companies generate thousands of pounds of profits per employee.

IOF has some similarities to an employee owned trust, which many larger companies have adopted. EOTs give employees rights to shares and dividends, but only while working for the business. Once people leave, they are no longer shareholders and have no ongoing rights.

But this is very different to the true share schemes run by many companies that give employees actual shares (or options, which are the rights to shares if certain conditions are met). These schemes can continue to reward people after they have left the business. Their contribution will continue to be valued, they can continue to own the equity and any appreciation in business value they help to create, and they can be rewarded long after they have moved on.

 

Ifty Nasir

What will be the impact?

At the maximum representation of 10%, the combined vote of all of these workers will be very much in the minority, and therefore the notion of ‘control’ suggested in the IOF proposal is non-existant under normal circumstances.  However, if prefered voting rights are issued to these shares to ptovide that ‘control’,this is likely to put other people off investing in the business, due to the disproportionate power that this minority may then wield. In this scenario, the tail doesn’t wag the dog, it has the potential to actually stop the dog from walking.

We can therefore expect to see a shareholder exodus, and private companies will find their funding options greatly reduced.

In practical terms, Labour’s proposal will – over time – reduce the value of all participating companies by 10%. This is quite the opposite of what company directors and senior managers are expected to do: the legal obligations of a Board are to act legally in the best interest of the company and maximise shareholder value.

The net effect of IOFs will be to reduce shareholder value by 10% while effectively increasing Corporation Tax beyond the 26% Labour has proposed, potentially to a rate of more than 30%, if recent analysis proves to be correct.

Will the companies be forced to pay dividends? Many companies choose not to issue dividends, even after reporting sizeable profits, for some very valid business reasons, such as investing in growth.

What will be the impact for companies that are rapidly growing and about to reach the threshold of 250 employees? At that point they will be forced to implement the scheme, devaluing their business in the process. It is an unnecessary bump in the road and would clearly make companies delay growth beyond this point for as long as possible.

 

What is the alternative?

Sharing equity isn’t meant to restrict growth nor reduce the value of a business. Quite the opposite.

There are already more than 10 different ways of distributing actual equity to employees, from HMRC-approved EMI schemes and EOTs to growth shares and unapproved options. We help UK founders do this every day of the week, as in recent years there has been a considerable uplift in understanding and the desire to share ownership with those who do or could help a company’s success, which is a powerful force for good.

We applaud Labour for encouraging companies to progress along the path of increasing equity ownership within their teams, but the suggested scheme is unworkable, undemocratic, and ultimately unfair to the workers themselves.

We hope that Labour will consult with experts and consider the alternatives before this damaging policy is implemented (should they win the election of course!).

 

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Wealth Management

THE TRIALS AND TRIBULATIONS OF TRADERS TRADING FROM HOME

Steve Haworth, CEO of TeleWare Group

Banks had hoped to keep their London trading floors open amid the worsening coronavirus pandemic, insisting traders were “key workers”. But trading floors were quickly cleared and employees sent to work from home in isolation.

Firms needed to quickly adapt to remote working. This meant recreating the carefully monitored environment of the trading floor at thousands of sites.

With major disruption across the entire sector, it seems the Financial Conduct Authority felt no other choice but to relax regulations on recording calls. But does this measure introduce more problems than it solves?

 

Why call recordings are regulated

Whilst regulations differ globally, authorities in the UK, US and Hong Kong have long required trading floor phone calls to be recorded for certain activities.

In the UK, the FCA demands financial institutions keep records of all trades and transactions related to certain types of business for at least six months. Recording calls and reporting trades are essential to the regulators’ ability to monitor the markets for abuse, such as insider trading. Requirements to record calls apply to companies that receive and execute client orders to buy or sell in the financial markets.

Steve Haworth

Each trading floor in a financial firm also has its own set of policies which staff must abide by. For instance, the trading floor manager must ensure that all trade-based calls are recorded and monitored. An often-used policy that still exists is to ban all mobile phones on the trading floor. To enforce this, mobile phones are often stored in lockers and traders are required to use turrets to host calls.

Beyond call recording, most traders and salespeople need to sit together on a monitored trading floor in order to meet regulatory rules. A range of compliance complexities under GDPR, MiFID II and Dodd Frank have meant working from home has simply not been an option for many traders.

 

The rush to relax regulations

Traders are now required to work from home – if they can. The FCA has said it accepts that some scenarios may emerge where recording calls may not be possible. Adding that it expects companies to “consider what steps they could take to mitigate outstanding risks if they are unable to comply with their obligations to record voice recordings.” If financial services companies are unable to record calls they are then expected to “come up with a plan to fix the problem”.

Yet, trading firms have enough problems to solve without having to decipher call recording requirements. Why should traders spend extra time updating the FCA and coming up with an alternative solution when one already exists?

 

A smart alternative

Smart solutions – such as mobile call recording which meet global regulations – have perhaps been overlooked as a way to maintain business continuity.

Mobile voice recording technology (MVR) is not new. It has existed since 2011 and includes secure and reliable voice and SMS recording, easy to use conferencing and robust, accessible voicemail. It has matured over the years and proven itself to be flexible and highly reliable.

Technology can keep traders trading from wherever they are. Ensuring they can operate effectively at home while remaining compliant.

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Business

STOP THE CONFUSION: HOW TO KNOW IF YOUR BUSINESS MAY BE INSURED AGAINST COVID-19

COVID-19

By Alex Balcombe, Partner at Harris Balcombe

 

The last few weeks has seen businesses in hospitality, tourism, retail, leisure and more forced to close their doors following the Government’s orders that they should close to prevent the spread of coronavirus.

While this is expected to flatten the curve and reduce the number of coronavirus cases, it will of course have an impact on businesses and employees alike.  For small businesses especially, there are many concerns about how they can claim on their insurance to weigh the fall of this impact.

 

Mixed Messaging

In response to calls to help struggling businesses, the Government has informed the public that companies who are facing turmoil will be able to claim on their business interruption insurance during this difficult time. For most, this is wrong.

Alex Balcombe

The insurance industry has also been extremely vocal that there is no cover for any coronavirus-hit businesses during this tough financial period. This isn’t strictly true either.

How can businesses see through the mixed messaging and best secure their future and their livelihoods and reduce money worries? It’s an extremely stressful time for many companies, and confusion over whether or not they can be covered can only cause more unnecessary stress.

Since it’s a new disease, most businesses will not be covered for business interruption due to COVID-19. In fact, the vast majority of policies do not cover anything related to COVID-19.

That said –  don’t rule out the idea that you may be covered. There is a chance that you will be covered against COVID-19, but not know it. This is a very small chance, but your current cover may already protect your business against the consequences of coronavirus, and the nationwide response to it –  though those with this cover are unlikely to realise it.

 

How Could I Be Covered?

Not everyone has business interruption insurance, as it’s not a legal requirement. It is entirely up to the policy holder to weigh up the benefits of having it, and their ability to trade should a disaster happen.

To be considered for cover for COVID-19, there are two types of policy extensions to your business interruption cover that can potentially cover you for this situation:

Infectious Disease Extension 

Many policies expressly state which diseases fall within the realm of being an infectious or notifiable disease. If this is the case, your policy will not provide cover. As it is a new disease, these policies will not have included COVID-19.

Other infectious disease extension policies will define the disease with reference to the actions of the government. Since the UK Government has named COVID-19 as a notifiable disease throughout the UK, it is possible that your business may fall into this definition, thus meaning you may be able to make a claim.

However, again, it’s not always that simple. Many policies require the disease to have been on your premises, while others specify a radius from your premises in order to qualify.

 

Denial of Access Extension (non-damage)

Denial of Access Extension (non-damage) policies may cover you if you’re prevented from accessing your property. This could be due to an event, or by the actions of a competent authority, which could cause your business interruption cover to engage.

If covered by this clause, there are often very subtle differences in wording in your policy. This could depend on the insurer or policy. You may well be covered, but it will depend on your particular circumstances, and the specific policy wording.

 

What now?

It’s clear that the Government needs to do more in ensuring there is clear messaging for businesses, and to help the insurance market look after policy holders. This is an unprecedented situation, and with many people looking to claim on their insurance, we’re already seeing major delays which could have a domino impact.

People throughout the world are understandably facing all kinds of worries because of the current pandemic. Our ways of living have changed, and many business owners will not have experienced a situation like this in their life times. If you own a business and are unsure about whether you can claim for business interruption, or are confused about ambiguous wording, get in touch with a loss assessor.

These claims are not simple, but loss assessors will be experts in business interruption insurance, and will specialise in large and complex claims. They will be able to help and guide you along the way, check your wording and work on your behalf to make sure you get everything you are entitled to.

 

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