Regulation Watch: April could be the cruellest month

A regulation which will affect any private equity firm that does business in New York state came into effect in March. They must now have a cybersecurity programme in place. It compels them to establish risk-based standards for technology systems, report on their cybersecurity programmes, and document certifications of regulatory compliance to the Department of Financial Services each year. 

Private equity lawyer Jay Clayton, Donald Trump's choice to head the US Securities and Exchange Commission, was expected to have his confirmation hearing before the US Senate Banking Committee on 23 March. Despite grassroots opposition – driven by his connection to Goldman Sachs – he was expected to be confirmed with a comfortable margin.

The General Data Protection Review will come into force in a year's time, so firms need to be prepared. The review expands EU data privacy protection regulation to cover all businesses that control or process personal data related to the offering of goods and services, or monitor the behaviour of individuals in the EU, wherever those companies are based. The fine for a data breach following its entry will be the equivalent of 4 percent of the company's global annual turnover. 


The Fiduciary Rule, which would stop financial advisors recommending private equity investments to their 401(k) retirement plan clients is due to come into force on 10 April. But at press time, there was a chance it could either be delayed by 60 days or scrapped entirely. 

The delay was proposed by the US Department of Labor, which said it believes the rule still needs clarifying. The move came after President Trump issued a memorandum in February which called for its review.  

Private equity firms could expect a multibillion-dollar windfall if the rule is scrapped because it would allow them to tap into the lucrative 401(k) market. 

Non-UK domiciled fund managers will be hit for a second consecutive year following a revision to the non-dom tax rule. This will hit US non-doms particularly hard as they face taxation on their income in both the US and the UK; the US is the only developed country in the world that taxes citizens on worldwide income and gains, no matter where they reside. 

Previously, many US private equity professionals based in the UK were not subject to tax on their worldwide income, so the interaction of the two tax regimes was much less relevant. The new rules come into effect on 6 April.

The European Central Bank is due to deliver a decision on a new leverage ratios regime, which some managers fear will hit the credit available to funds and portfolio companies.

Under the proposals, underwriting of transactions that have a ratio of total debt to EBITDA of more than six times at deal inception is a high level of leverage, and should be exceptional. Private equity investments in and/or leveraged buyouts of companies will be classed as leveraged transactions.

A public consultation finished on 27 January and is under review by the ECB.