Your mortgage is going to be a huge financial investment and something new to factor in to your budget and financial abilities. When deciding what mortgage to borrow both yourself and the lender will have to evaluate your current financial situation including any existing debt to decide what repayments you can comfortably make.

Before you start the mortgage application process you should know how much to expect.

Mortgage to Income ratio

It is sensible to keep this ratio as low as possible to ensure you will be able to sustain it. If you miss payments or cannot make the re payments you could have increased interest added on as well as more severe consequences such as repossession.

Using  no more than30-40% of your post-tax income for your mortgage is a popular method for home owners and mortgage lenders too.

Lenders will generally prepare to lend 4.5 times your annual salary.

For Example…

If your annual salary is £50,000 and you have no debts then your maximum mortgage will be £255,000.

If your annual salary is £30,000 and you have no debts then your maximum mortgage will be £135,000.

If you are applying as a joint holder with somebody else then the lender will review both finances and your mortgage loan could be higher.

This international women's day we spread awareness for those who work in the financial and business sectors where they suffer from inequality at work.

As one of the top business and financial regions, London is on top in many areas with booming business and advances in investments and more. Despite this city’s success it is greatly behind in it’s diversity and equality movements.

Bloomberg’s report from 40 women across banking, insurance and asset management in Britain have describe diversity and inclusion initiatives as ‘tokenistic’ and lacking any real change in the industry.

Many believe we won’t reach gender pay equality until at least 2050 or later.

Change is moving too slowly to make a real impact in the long run and many are worried how long it will take to reach gender impunity.

The UK parliament released a report on the Treasury Committee’s urge for action on tackling sexism in the city.

Are we Moving backwards?

• On average in the UK men are paid 14.5% more than their female counterparts. This gap has increased in the last year from 14.3%
• EY figures found that only 44% of directors in European financial services firms appointed in 2023 were women, this is down from 51% in 2022.
• EY research also shows that in the financial industry, the gender split among board directors is 39% female and 61% male.
• Many victims of workplace abuse have been made to sign a non-disclosure agreement meaning the abuser is given their freedom whilst the victim of assault is forced into silence.

What needs to be done

• The Treasury Committee has urged for a ban on NDA’s in cases of sexual assault.
• More support at all different levels including young women in education, help to provide access to education to more women and encourage them to pursue business and finance.
• Increase focus on the wellbeing of staff rather than the reputation of the company as the committee found HR teams were prioritising the business and those in senior positions.
• Firms should focus on internal talent and on developing those within the business already instead of buying talent into the business.
• The UK parliament’s report suggested more education and awareness around menopause would help many women able to remain in their roles for longer.

The trade union Unite explained:

“We lose good people [ … ] at menopause, when you have qualified, capable women choose to leave their roles due to the lack of understanding and willingness to work through the issues and keep that good person in role.”

• Gender equality campaigner, Baroness Helena Morrissey told the BBC that more men needed to be involved in the change. The business and financial industry is still a male-dominated industry and riddled with bullying and abuse towards women, this can only change if both men and women are aware and willing.

The Financial and Business sector needs to do more to improve it’s equality and diversity stand point. This will widen their talent pool and improve the skill shortage problem in addition to encouraging more women to take on senior positions as well as enter into the industry to begin with.

When buying a house, you will have to take out a mortgage loan from a bank or building society of your choice such as Lloyds, Barclays, Nationwide, NatWest Bank and more. It is overwhelming to wade through all the jargon and information so this is a short guide on the different types of mortgages that you could take on.

You will have to pay back your mortgage loan plus interest to the bank or building society by the end of your term which you decide on, this could be 2 years, 5 years or more.

Fixed Rate

• This is the most common type of mortgage for people to take on.
• You pay the same rate for a set number of years making monthly payments.
• You can decide how long your term is, 2 or 5 years is the most common however, you can choose a longer term of 7 or 10 years if you wish.
• This type of mortgage means that the amount you pay each month remains consistent regardless of the Bank of England base rate.
• At the end of your term, you will have to remortgage or be moved over to the lender’s standard variable rate (SVR) which is usually more expensive.
• You cannot exit your term without having to pay an early repayment charge.

Tracker Mortgage

• The lender tracks the Bank of England base rate and changes along with it. They also add a set percentage.
• The current base rate is 5.25%, so if your bank’s set rate is 1% you will have to pay 6.25% interest on your loan.
• Some of these types of mortgages will come with a limit so your rate can only fall to a certain level. This means even if the Bank of England base rate falls lower, your rate will not drop that low.
• There will not be as much consistency with this type and the amount you pay back each month could regularly change.

Discount Mortgage

• Your lender could change their SVR meaning your rate could change as well.
• Your rate will not depend on the base rate of the Bank of England but on the lender's SVR. This means that even if the base rate of the Bank of England goes down, yours will not be affected, however, if it goes up yours will not automatically go up as well.
• These types of mortgages can often have the lowest rates however your lender could change this at any time.

Interest only Mortgage

• During the set term, you will only have to pay back the interest not the actual amount you borrowed.
• When your term is up that is when you will have to pay back the amount you borrowed in a lump sum.
• You will have to have a secure way to make sure you will be able to pay back the whole amount by the end of the term.
• This type of mortgage is not as common as the lender will require proof that you have a plan to pay them back in full.

Factors to consider when deciding which one is best for you

• Will your income regularly change?
• Could you manage if your monthly payments suddenly went up?
• Do you like to have consistency and know what is coming ahead of time?
• Will you be able to pay the whole amount each month for the whole term?

A new mortgage model will soon become available in the UK called the Dutch-Style Mortgage which could make it more affordable for people to take out mortgage loans.

Taking out a mortgage loan is the biggest financial commitment you can make so it is important to have all the information and to shop around for the best deal for what you need. You can use sites to compare different deals making it simple such as Compare the Market.

You can use a mortgage calculator to determine how much you can afford to borrow without accumulating debt and getting yourself into a bad situation. This will take into account your salary and how much you have for your deposit. It is important to take into account other factors such as your existing debt, you’re spending and how much the deposit will be, so don’t get caught out.

There is a new mortgage model coming to the UK soon which could make it more affordable to take out a mortgage for more people. This new mortgage model is designed to save the borrower money as well as reduce the risk to the lender. It’s a win-win for everyone!

This involves the interest rate coming down as the loan is being paid off. This means the borrower could save an estimated £5127 in interest if the LTV fell from 85% to 60% as stated on a National World report.

The Guardian offers this example, “if you buy a property for £200,000 and borrow £150,000, your LTV is 75%. If you reduce the mortgage debt to £140,000, your new LTV would be 70%. Assuming that at that point April Mortgages has a cheaper rate available at 70% LTV than at 75% LTV, it will automatically switch you on to the lower rate in which case you do not have to do anything.”

The offer

• This model is currently available to those who are re-mortgaging and is set to be available to first time buyers by early April this year.
• There will be no imposed early repayment charges if borrowers sell their home during the product term or if they make overpayments using their own money.
• Overall, you will be able to save money as you won’t have to pay back as much with this style of mortgage.
• Have a reduction in your interest rate as you pay the loan back.

This model will be a great option for all involved as the borrower is saving money as the interest rate decreases, equally, this reduces the risk for the lender as the value decreases.

April Mortgages

The model originated in the Netherlands by April Mortgages in 2014. Since then, the firm has facilitated over 100,000 loans which has accumulated nearly £25.63 billion. They are now one of the top lenders in the country.

April Mortgages offer flexibility and reward their customers for their repayments as they fulfil their end of the deal.

In a National World report, we learn that “April Mortgages were authorised by the Financial Conduct Authority in October to offer loans for 15% deposits but is now planning to accommodate first-time buyers with 5% deposits by the end of March.”

Tim Hague is the director of the firm and speaks on the new model having been successful in the Netherlands after doubt and now the wish to bring his ideas to the UK is reality.

There are various types of mortgage models currently available in the UK which you can learn about here. 

Are you interested in a Dutch-style Mortgage?

How does the Inheritance tax work?

Inheritance tax was first introduced in 1984 and is tax paid on the estate, this includes property, money, and possessions of someone who has passed away. This tax must be paid on anything above the value of the £325,000 threshold. If everything above this threshold is left to a spouse, civil partner, charity, or a community amateur sports club there is no tax required to be paid.

The standard tax rate is 40% on what you inherit over the £325,000 threshold with £7 billion being raised annually through inheritance tax which is then spent on public services.

If the person passing away leaves their home to children or grandchildren the threshold can increase to £500,000 before being taxed.

If your estate is worth less than your threshold and you are married or in a civil partnership when you pass away, any unused threshold can then be added to your partner’s so the tax-free allowance increases for them.

In an interview with Clive Barwell, who has over 50 years of experience in the industry told us invaluable information about IHT, that the best and easiest way to save on IHT is to give your surplus wealth away as gifts.

“At the point of making a cash gift, there are no tax implications for either the Donor or the Donee, regardless of the amount given away. However, for the gift to be fully effective for IHT purposes, the Donor must survive for 7 years from the date of the gift. If they don’t, the value of the gift is added back into the IHT calculation upon death.”

Clive Barwell emphasises the significance of planning ahead and believes that “Failing to plan is planning to fail.”

Why does the Conservative Party want to cut Inheritance tax?

Towards the end of 2023, there was speculation that the conservative government would be getting rid of inheritance tax due to their plans for a 'gear change' on tax. Those in favour at this time were warned of the backlash from the public as this change focused on tax cuts for the rich rather than helping ordinary families in a time of economic uncertainty.

Then on December 27th, 2023, The Telegraph reported that several conservative MPs favoured cutting inheritance tax and the change could happen in the Spring budget.

The conservative party are said to be behind Labour in the polls and looking for ways to boost their numbers. The Independent stated that members of the conservative party believed that this could be a “game changer.”

Who will this benefit?

The Institute for Fiscal Studies notes that 1% of people in the UK would receive almost half of the benefits. Only the wealthiest in the UK will come out of this change with a positive outcome.

As inheritance tax is only paid by 4% of households, that’s 1 in 25 paying this tax.

A YouGov survey tells us that 54% of voters considered the tax ‘very unfair’ or ‘unfair.’ With a high proportion of people feeling the tax is unfair, the Conservative Party feel this gives them an advantage in upcoming elections.

How likely is it to be abandoned?

Although there are rumours that many MPs are in favour of the inheritance tax cut there are also some expressing their distaste for this cut. Jonathan Gullis, former Education Minister has said he would rather see “the higher rate income tax threshold raised, or the basic rate of income tax cut now.”

Additionally, Neil O’Brien, the former Health Minister has said, “People most want to cut taxes that fall on low- to middle-earners and council tax and VAT.” The Guardian brings an Ipsos poll to our attention that showed the public preference for a tax cut was one on low-income tax (44%), followed by 36% hoping for council tax cuts.

It is largely felt that IHT being cut is just a speculation as some conservative members are highlighting other, more pressing matters that are important to the public. The MPs are also aware of the likelihood of backlash with this change causing the delay and second thoughts.

The cutting of inheritance tax could likely become a manifesto pledge rather than a set-in-stone policy.

Hughes Hubbard & Reed LLP, a leading international law firm, has successfully represented JOST Werke SE, a global leader in the manufacturing of smart systems for commercial vehicles, in its recent acquisition of Crenlo do Brasil. The firm acted as the primary legal advisor, leveraging its extensive expertise to navigate the complexities of this international transaction.

Gerold Niggemann spearheaded the Hughes Hubbard M&A team, bringing to the table his rich experience and strategic insights. His leadership was crucial in coordinating a multidisciplinary team comprising specialists across various legal domains—antitrust, tax, employment and benefits, real estate, compliance, and intellectual property—ensuring a seamless transaction flow.

The firm's global reach and collaborative spirit were further amplified by the involvement of local counsel, with Santos Neto providing essential Brazilian due diligence insights and Nauta Dutilh offering advice on Dutch law matters.

This transaction stands out in the Brazilian M&A market for its pioneering use of representations and warranties insurance—a testament to Hughes Hubbard's innovative approach to managing potential risks and liabilities in M&A deals.

With Hughes Hubbard’s comprehensive legal support, JOST Werke SE is well-positioned to capitalize on its expanded presence in Brazil, aligning with the company’s strategic growth objectives in South America and reinforcing its commitment to delivering excellence in the commercial vehicle industry.

Edward Vaughan, senior director at LexisNexis Risk Solutions, looks at the potential costs of buying or building a risk orchestration platform. 

The benefits of orchestration

Risk orchestration is gaining incredible traction in regulated sectors. The technology can help firms optimise multiple sources of data and screening and monitoring tools that are used to detect and prevent financial crime. Unlike some traditional risk management strategies, risk orchestration can synchronise disparate processes, resulting in unified outputs and risk scores.

It’s a welcome antidote to the duplication of effort, conflicts, and delays that can easily and regularly occur during financial crime screening. Customers can be authenticated and validated quickly with reduced levels of friction that otherwise negatively impact user experience.

As more firms strive to realise these benefits, there’s now a noticeable trend amongst firms to build risk orchestration platforms in-house. The belief is that it’s the cost-effective route, but our recent analysis suggests otherwise.

Expensive self-build

We looked at the typical self-build orchestration costs for a mid-tier UK bank onboarding around 100,000 customers and processing an average of two million transactions per year. 

For a bank of this size, build costs would be around £3.1 million in the first year, with about a third spent on a team of developers to build and test software. Creating an API that can bring together multiple different data sources and systems can be complex and time-consuming. The remaining budget will go on annual licence costs and data fees, covering Identity and Verification (IDV), document verification, transaction monitoring, application fraud and AML screening. 

In years two and three, self-build calculations include annual license renewal costs and data fees, as well as the not-insignificant costs of maintaining and developing a platform to grow and adapt with a business. 

So, even conservative estimates will put costs for year two and beyond at over £1.3 million per annum for a self-built platform. That’s an approximate investment of almost £6 million in the first three years. 

Risk Orchestration – the cost-effective approach

Given that specialist software developers are typically the most expensive part of a self-build approach, the alternative could be to work with an expert partner to integrate a plug-and-play risk orchestration platform via a no-code API.

A specialist partner can draw on industry-wide insight and experience to help develop a solution that evolves with an organisation’s growth and can adapt to changing financial crime threats. Such solutions are also scalable, meaning a small-to-midsize firm can procure an affordable, yet high-performing platform, without it weighing heavily on the balance sheet. Economies of scale across licence and data fee costs can also be realised. 

Specialist orchestration platforms provide an automated, end-to-end solution for customer onboarding and ongoing monitoring, incorporating anti-money laundering screening, transaction monitoring and case management. With support from multiple data source providers, firms are free to stick with the vendors they know and trust, or can swap them out for others, at the same time benefitting from simplified vendor management.

The easy set-up and integration of a risk orchestration platform like LexisNexis® RiskNarrative™ is complemented by an intuitive interface and the ability to drag and drop services and apps. It eliminates the need for costly IT-led operations and interventions, saving firms both time and money. 

Best of all, our analysis suggests all this is achievable at around a third of the cost of a self-built solution over the first three years, freeing up more than £3.5 million to invest back into a business.  

All financial services firms want to prevent more fraud. At the same time, most firms are also under pressure to reduce compliance costs. Risk orchestration is the perfect tool to achieve both these opposing goals – the only question remaining is whether to buy or build a platform.

Join a free webinar on Tuesday 28th November at 2 pm, when leading industry analysts and experts will explore the build versus buy dilemma and the many benefits of a risk orchestration platform. Click here to register now. 

In today's rapidly evolving business landscape, CFOs play a vital role in driving profitability and ensuring long-term success. With the advancement of digital technology, CFOs have the opportunity to leverage innovative tools and strategies to optimize financial operations and enhance profitability. This article explores the various aspects of incorporating digital technology in finance and provides insights into how CFOs can harness its potential to drive profitability.

Understanding the Role of a CFO in the Digital Age

The role of a Chief Financial Officer (CFO) has greatly evolved in the digital age. Traditionally focused on financial planning, reporting, and risk management, CFOs now play a strategic role in leveraging digital technology to drive growth and profitability.

In today's fast-paced and interconnected world, businesses are increasingly relying on digital tools and platforms to streamline operations, gain insights, and stay competitive. As a result, CFOs have become key players in navigating the complex landscape of digital finance.

One of the primary responsibilities of CFOs in the digital age is to understand and anticipate digital disruptions in the finance landscape. By staying up-to-date with emerging technologies and market trends, CFOs can proactively identify opportunities to optimize financial operations and enhance profitability.

With the advent of digital technology, CFOs have access to vast amounts of data that can be used to drive informed decision-making. By harnessing the power of data analytics, CFOs can gain valuable insights into customer behaviour, market trends, and financial performance. This data-driven approach enables CFOs to make strategic financial decisions that align with the organization's goals.

The Evolving Responsibilities of CFOs

As digital technology continues to transform the finance function, CFOs are faced with new responsibilities and challenges. In addition to their traditional roles, CFOs are now expected to drive digital transformation and innovation within their organizations.

CFOs are increasingly responsible for evaluating and implementing digital tools and systems that can optimize financial operations, such as cloud-based accounting software, robotic process automation, and data analytics platforms. These technologies streamline financial processes, improve accuracy, and provide real-time insights for better decision-making.

Furthermore, CFOs are now playing a critical role in cybersecurity and data privacy. With the increasing risk of cyber threats and data breaches, CFOs must ensure that their organization's financial systems and data are secure and compliant with regulatory requirements.

To meet these evolving responsibilities, CFOs need to develop digital literacy and stay abreast of the latest technological advancements in finance. Embracing digital technology is crucial for CFOs to drive profitability and maintain a competitive edge in today's digital age.

The Importance of Digital Literacy for CFOs

Digital literacy is essential for CFOs to effectively incorporate digital technology in finance and drive profitability. It involves understanding how digital tools and platforms can enhance financial operations, make data-driven decisions, and identify growth opportunities.

Developing digital literacy requires continuous learning and staying ahead of emerging technologies. CFOs should actively seek opportunities to gain knowledge and experience in digital finance, such as attending seminars, webinars, and industry conferences.

In addition to technical knowledge, CFOs also need to develop soft skills such as communication, collaboration, and adaptability. These skills are vital for effectively leading digital transformation initiatives and driving cross-functional collaboration within the organization.

As the digital age continues to reshape the business landscape, CFOs must embrace the opportunities and challenges that come with it. By embracing digital technology, developing digital literacy, and staying ahead of emerging trends, CFOs can play a pivotal role in driving growth, profitability, and success in the digital age.

The Intersection of Finance and Digital Technology

The intersection of finance and digital technology presents numerous opportunities for CFOs to improve profitability and drive growth. In today's fast-paced and interconnected world, the finance landscape is undergoing a digital revolution that is reshaping the way financial transactions are conducted and managed. This shift towards digital finance has not only resulted in increased efficiency and reduced costs but has also brought about significant improvements in customer experience.

One of the key ways digital technology is changing the finance landscape is through the rise of online banking, mobile payments, and digital currencies. These innovations have made financial transactions more accessible and convenient, allowing individuals and businesses to manage their finances anytime, anywhere. With just a few taps on a smartphone, people can transfer funds, pay bills, and even make purchases, revolutionizing the way we interact with money.

But the impact of digital technology on finance goes beyond just convenience. It has also enabled the automation of routine financial processes, such as invoice processing and financial reporting. By leveraging technologies like robotic process automation (RPA) and artificial intelligence (AI), CFOs can streamline these tasks, reducing the risk of errors and freeing up valuable time for strategic initiatives and value-added activities.

Furthermore, digital technology has facilitated the integration of financial data from multiple sources. In the past, CFOs had to rely on fragmented and siloed data, making it difficult to get a comprehensive and accurate view of the organization's financial health and performance. However, with the advent of advanced data integration tools and cloud-based platforms, CFOs can now have a holistic view of their financial data, enabling more accurate forecasting, better risk management, and proactive decision-making.

Key Digital Technologies Impacting the Finance Sector

Several key digital technologies are transforming the finance sector and have the potential to significantly improve profitability:

Artificial intelligence and machine learning:

 These technologies enable CFOs to automate data analysis, identify patterns, and make accurate predictions for better financial planning and risk management. With AI-powered algorithms (ChatGPT), CFOs can analyse vast amounts of financial data in real-time, uncovering valuable insights and trends that can drive strategic decision-making.

Data analytics:

Advanced data analytics tools allow CFOs to extract valuable insights from financial data, enabling them to identify cost-saving opportunities, optimize pricing strategies, and improve profitability. By leveraging data visualization techniques and predictive analytics, CFOs can gain a deeper understanding of their business performance and make data-driven decisions.

Blockchain:

The use of blockchain technology in finance ensures transparent and secure financial transactions, reduces fraud risk, and streamlines processes such as supply chain financing and cross-border payments. By leveraging blockchain's decentralized and immutable nature, CFOs can enhance the security and efficiency of financial transactions, eliminating the need for intermediaries and reducing costs.

Risk management systems:

Digital risk management platforms enable CFOs to analyse and mitigate financial risks in real-time, enhancing the organization's ability to respond to potential threats. By leveraging advanced analytics and real-time monitoring, CFOs can identify emerging risks, assess their potential impact, and take proactive measures to mitigate them, safeguarding the organization's financial stability.

These digital technologies are not only changing the way finance operates but also presenting CFOs with new opportunities to drive growth and profitability. By embracing digital transformation and leveraging these technologies effectively, CFOs can position themselves as strategic partners within their organizations, driving innovation, and shaping the future of finance.

Strategies for Incorporating Digital Technology in Finance

Successfully incorporating digital technology in finance requires strategic planning and careful implementation. The following sections discuss strategies for identifying the right digital tools for your organization and steps to implementing digital technology in finance operations.

Identifying the Right Digital Tools for Your Organization

Before implementing digital technology in finance, CFOs need to evaluate their organization's specific needs, challenges, and goals. This involves conducting a thorough assessment of existing financial processes, systems, and data requirements.

CFOs should collaborate with finance and IT teams to identify digital tools and platforms that align with the organization's objectives and budgetary constraints. It is crucial to select technology solutions that are scalable, flexible, and provide a seamless integration with existing systems.

Furthermore, CFOs should consider the long-term impact of the selected digital tools on profitability and return on investment. Conducting a cost-benefit analysis and seeking input from key stakeholders can help in making informed decisions.

Steps to Implementing Digital Technology in Finance Operations

Once the appropriate digital tools have been identified, CFOs need to develop a comprehensive implementation plan. The following steps can guide CFOs in successfully integrating digital technology in finance operations:

Define objectives and scope:

Clearly define the objectives and scope of the digital transformation initiative, keeping in mind the organization's overall strategy and financial goals.

Engage stakeholders:

Involve key stakeholders, including finance, IT, and other relevant departments, in the planning and implementation process to ensure buy-in and collaboration.

Allocate resources:

Allocate the necessary resources, such as budget, personnel, and infrastructure, to support the implementation and ensure smooth adoption of digital technology.

Train and upskill:

Provide training and upskilling opportunities for finance and IT teams to effectively use the digital tools and maximize their potential.

Monitor and evaluate:

Continuously monitor and evaluate the performance of the digital technology, gather feedback, and make necessary adjustments to ensure its effectiveness in driving profitability.

Measuring the Impact of Digital Technology on Profitability

To evaluate the effectiveness of digital technology in driving profitability, CFOs need to establish key performance indicators (KPIs) and measure the return on investment (ROI) of digital initiatives. The following sections discuss the key KPIs and the evaluation of ROI:

Key Performance Indicators for Digital Technology in Finance

The selection of appropriate KPIs depends on the specific objectives and scope of the digital initiatives. Some common KPIs for measuring the impact of digital technology on profitability include:

Cost reduction: Measure the percentage reduction in finance-related costs, such as processing costs, error correction costs, and labor costs.

Efficiency improvement: Measure the time savings and cycle time reduction achieved through digital tools and automation.

Forecast accuracy: Measure the improvement in forecast accuracy and the ability to proactively identify risks and opportunities.

Revenue growth: Measure the impact of digital initiatives on revenue growth, including increased sales, improved pricing strategies, and enhanced customer retention.

Evaluating the Return on Investment of Digital Technology

To evaluate the ROI of digital technology in finance, CFOs need to compare the costs incurred against the financial benefits achieved. This involves tracking the direct cost savings, revenue growth, and intangible benefits such as improved decision-making and enhanced stakeholder satisfaction.

ROI can be calculated by dividing the net financial benefits by the total cost of the digital initiative and expressed as a percentage. Regular evaluations should be conducted to ensure ongoing alignment with the organization's profitability goals and to identify areas for further improvement.

In conclusion, incorporating digital technology in finance is essential for CFOs to improve profitability and drive long-term success. By understanding their evolving responsibilities, developing digital literacy, and leveraging key digital technologies, CFOs can optimize financial operations, make informed decisions, and identify growth opportunities. By implementing digital tools strategically and measuring their impact, CFOs can ensure that their organizations stay competitive in the digital age.

Mastering Your Legacy:

The Essential Guide to Estate Planning

Clive Barwell, TEP CFP™ Chartered FCSI

 In a world where financial acumen is pivotal to one’s peace of mind, delving into the intricacies of estate planning and wealth management is imperative. Today, we sit down with Clive Barwell, TEP CFP™ Chartered FCSI, who has a journey as intriguing as his advice. Starting his career serendipitously after a simple bank visit, he swiftly became an expert in matters of Wills, Trusts, Probate, and Tax Advice. With a remarkable 53 years of experience in the industry, Clive’s specialisation in the later-life market has made him a beacon of guidance for many. In this insightful conversation, we explore the vast world of estate planning, unpack the complexities of inheritance tax, and dive deep into the essence of a well-structured will. Join us as Clive demystifies the financial intricacies of our lives and illustrates the importance of planning ahead for the future.

Clive, could you start by telling us about your journey into financial planning and why you chose to specialise in the later life market?

In common with many from my generation, financial services wasn’t my first choice of career. The family profession is teaching, and I thought I was going to teach biology.

However, when that didn’t come to pass, and being an impoverished former student, I asked my Bank Manager for an overdraft whilst looking for a job. Instead of interviewing me for an overdraft, he interviewed me for a job, and the rest, as they say, is history. That’s 53 years ago; I started just seven months after decimalisation.

My initial career in the bank was in their Executor & Trustee Department, so Wills, Trusts, Probate, Investments, and Tax Advice. My first client was a widow in her 70s whose late husband had appointed the bank executor. Not only was this lady vulnerable because of her bereavement, she was also vulnerable because of her lack of financial acumen; her husband had dealt with everything secretively, believing he was doing his wife a favour.

I realised that I had an aptitude for dealing with older people, and the outstanding training I received from the bank through a 24-year career stood me in good stead to advise on not only investments but succession planning and taxation, particularly Inheritance Tax (still Estate Duty when I started). I have continued in this vein as an Independent Financial Adviser for the last 29 years.

Could you briefly explain to our readers what estate planning is and why it’s so crucial?

Estate Planning is the process of cascading wealth down through the generations in the most tax-efficient and timely manner. This is oversimplifying it. Although it is the case for most families, it also encompasses using some of the accumulated wealth for altruistic purposes.

Most of my clients consider estate planning to be crucial because they feel they’ve already paid enough tax whilst amassing their nest-egg and don’t want to pay any more.

The old business adage, “Failing to plan is planning to fail”, applies equally to estate planning.

The first obstacle to achieving someone’s intentions is the loss of capacity.

The recent, tragic case of Derek Draper, Kate Garraway’s husband, who had a dreadful reaction to Covid-19 in his early 50s, serves to illustrate it is never too early to be thinking of a Lasting Power of Attorney. In the absence of a Lasting Power of Attorney, the only alternative is an application to the Court of Protection for a Deputyship order which is costly, laborious, and onerous.

To be fair, Attorneys under a Lasting Power of Attorney for Property & Financial Affairs are limited in the scope of the estate planning they can undertake. However, with a robustly drafted document, Attorneys can certainly continue what has already been started.

The second obstacle is failing to make or update a Will. In the absence of a Will, the Laws of Intestate Succession dictate who has what and when. It is inappropriate to discuss all the ramifications in this article, but in the case of a married couple with young children, the spouse would get the first £322,000 (increased from £270,00 on 23 July 2023) and half of the balance. The remaining half-share goes to the children at the age of 18. Ask yourself what the 18-year-old you would have done with a substantial inheritance at that age. Would the answer have been different at 21 or 25?

The third obstacle is potential care costs, especially following the first death. At least with Inheritance Tax, there’s a reasonable tax-free threshold (see later comments), but in England, the lower means-tested threshold is just £14,250.

According to Lottie, in May 2023, the average cost of a care home in the UK is £928 per week, and a nursing home £1,025, so it doesn’t take long for a king-sized hole to be made in any inheritance.

Inheritance tax can be a complex topic for many people. Can you simplify it for us and highlight the most important aspects people need to be aware of to legally mitigate tax liabilities?

Simplify it? The HMRC Inheritance Tax (IHT) Manual runs to 40 volumes alone, so it isn’t easy to summarise, but I’ll give it a go. I’ll use the words “couple” and “spouse” by which I mean people who are married or in a Civil Partnership, so it doesn’t include unmarried people living together, regardless of whether they have children together or not.

For ease, I’ll say it is payable upon death when assets pass by Will or Intestacy to a non-exempt beneficiary. An exempt beneficiary is, in essence, a spouse or UK-registered charity. The first £325,000 (frozen since 2009 and until 05 April 2028, at the earliest) is known as the Nil Rate Band (NRB), which isn’t an exemption but a band of net assets (total value of the estate less liabilities) charged at 0%. Everything above this is taxed at 40% (36% if at least 10% of the taxable estate goes to UK-registered charities).

A Residence NRB was introduced in April 2017, which now increases the standard NRB by up to £175,000 if the share in a residence passes to a lineal descendent – basically children, including stepchildren, and all subsequent generations.

This additional NRB is capped at the value of the interest in the property or £175,000, whichever is the lower. Also, it starts to reduce by £1 for every £2 the total estate exceeds £2m.

At £2.35m, the Residence NRB has gone completely.

Unused NRBs pass from one spouse to the other, so for someone with a property valued more than £350,000, with a total estate less than £2m, the total NRB on the second death could be £1m.

The latest statistics from HMRC for the year ending 05 April 2021, show that only 3.73% of UK estates pay IHT, which has been a consistent figure in recent years. For that 3.73% IHT was onerous, with the average IHT bill being £209,000.

What are some common mistakes people make when it comes to planning their estate and inheritance tax, and how can they avoid them?

We’re back to “failing to plan”, which involves several issues. In some ways, wealth can almost “creep up” on people, particularly in later life – accumulated savings, increase in property value, pension lump sum, an inheritance – and, without realising it, IHT rears its ugly head. There is also the issue of not knowing what you don’t know, so some people, even if they are aware that they have an IHT or long-term care problem, don’t know that there are things they can do to protect their family’s inheritance.

Those that do realise they have an issue often leave it too late to seek guidance. For example, the simplest way to save IHT is to give away surplus wealth during your lifetime. At the point of making a cash gift, there are no tax implications for either the Donor or the Donee, regardless of the amount given away. However, for the gift to be fully effective for IHT purposes, the Donor must survive for 7 years from the date of the gift. If they don’t, the value of the gift is added back into the IHT calculation upon death. Consequently, seeking advice in your late 70s or later greatly limits the options.

I say, “cash gift”, because a gift of an asset subject to Capital Gains Tax (CGT) – a buy-to-let property, for example – constitutes a disposal for GGT and could trigger an immediate tax liability.

How has the landscape of estate planning changed in recent years, and what should people be aware of looking forward to, particularly with a likely change in government and, therefore, policies at the next election?

IHT was introduced in 1984 and the broad principles remain unchanged, but the key landmarks have been: 2006 limitation on the use of Trusts; the 2007 introduction of the transferable (between spouses) NRB; the 2009 freezing of the NRB; the 2017 introduction of the Residence NRB.

For many in the group known as the “Mass Affluent”, the introduction of the Residence NRB, which effectively fulfilled the Conservative Party’s promise of a £1m NRB, has lifted them out of the IHT net. However, the freezing of the main NRB against a background of increasing asset prices, particularly housing, has exacerbated the IHT issues for higher net-worth individuals.

As already mentioned, means-tested long-term care has the potential to be more detrimental to a family’s inheritance than IHT, so the repeated failure of successive Parliaments to deliver on any of the recommendations in the Dilnot Report is a key consideration in estate planning – low asset thresholds and no cap on expenditure.

As for the future, I think we can see two polar opposites emerging, with the Conservative Party toying with a manifesto promise to abolish IHT and the Labour Party likely to make it more onerous. The Treasury, for example, is keen to reform some lifetime gifting, which has remained unchanged since 1984. Annual gifts of £3,000 are exempt from IHT but if that amount had been index-linked since 1984, it would now be some £9,300. The Treasury has in mind £15,000 but with a sting in the tail – regular, affordable gifts out of income would no longer be exempt. If you are a Billionaire with an income of several million pounds a year, you can really exploit the gifts out of income exemption, with £15,000 per annum hardly noticeable. It doesn’t take much imagination to think that if Rachel Reeves is in number 11 Downing Street as Chancellor of the Exchequer, the Treasury would be pushing at an open door with such reforms.

Another reform on the Treasury’s agenda which might also benefit from that open door is a reintroduction of CGT on death. Currently, taxable assets such as shares and second properties are revalued on death for IHT purposes, but any potential CGT is forgiven whether IHT is payable.

Could you delve deeper into the importance of a will in the process of estate planning? Are there any prevalent misunderstandings about wills that you’ve noticed among your clients when they first contact you?

Fundamentally, a Will achieves two things that the Laws of Intestate Succession don’t, the appointment of an Executor or Executors to manage your finances after your death and to specify who has what and when. Remember, currently, the Laws of Intestate Succession don’t recognise the concept of a “Common Law Spouse”, even with children, so a Will is absolutely essential in this situation.

Most couples with children, the common solution is to have a Will leaving everything to each other and then on to the children on the second death, which is what most people want to happen. However, there are several factors this doesn’t address, such as:

ü Long-term Care Costs. Prior to the first death, there is a disregard for the matrimonial home for means-testing whilst the other spouse is living in the property, so the cost of care may not be so much of an issue at this point. However, following the first death, the property may have passed by survivorship and everything else via the Will, so the combined assets are available to pay for care.

ü Divorce or bankruptcy of a main beneficiary. An absolute gift to a child on the second death is just that; the inheritance immediately becomes intermingled with the existing assets of that child. Any subsequent divorce or bankruptcy could see some or all the inheritance disappear.

ü Generational IHT. Are you cascading the IHT problem down the generations alongside the wealth?

These potential problems can be overcome using suitable Trusts in the Will, accompanied by a severance of the joint tenancy on the matrimonial home, meaning that a half-share of the property falls into the Will Trust on the first death rather than passing by survivorship. With the Trust including all subsequent generations of the family, it is easy to skip a generation or two if a beneficiary already has their own IHT problem, which will only be exacerbated by an inheritance.

In your opinion, when should someone start thinking about their will, and what are the key factors to consider?

As soon as you have something to leave – cash in the bank or equity in a property – it is never too soon. My eBook, “Will Writing the dos and don’ts” has a link to a cost-effective, professional starter Will.

Having written a Will, remember it isn’t a “tablet of stone” that will stand the test of time. Your circumstances are constantly changing, and so should your Will; at minimum, it should be reviewed every 5 years.

Whilst you have young children, your Will should appoint Guardians and probably make those Guardians the Executors. Generally, Guardians will be from your generation but, as you get older, they age with you, and you really need someone from a younger generation as Executor(s).

Equity release is another term often associated with estate planning. Could you explain what it means and when it could be a suitable option?

Equity release is the process of unlocking some of the money tied-up in your home without having to downsize. The most common reasons for accessing equity release are:

ü Paying off debts, especially interest-only mortgages.

ü Home improvements

ü Helping family and friends

ü Gifting

Generally, this is achieved by way of a lifetime mortgage, which is only repayable on the sale of the property, death, or earlier entry into residential care. In the meantime, interest rolls-up on the loan, so is compounding until the loan is repaid.

At the time of writing, interest rates are over 6% per annum, fixed for the duration of the loan. At this rate, a loan of just £10,000 with interest compounding over 10-years, increases to some £18,200.

Over the years, I’ve come across numerous families who have discovered that parents have responded to a television or newspaper advertisement for equity release, gone ahead and not consulted the family and/or taken fully independent advice. In some cases, the parents had other savings or investments which should have been accessed first. In others, children or grandchildren would have been only too willing to help to protect their eventual inheritance.

Equity release is a legitimate tool in the Estate Planner’s kit but something that should only be used as a last resort.

Lastly, do you have any general advice or important points that you think everyone should know when it comes to estate planning and managing their financial legacy?

Seek professional advice; estate planning is a broad and complex area of financial planning.

Preferably, seek the views of someone you know and find out who their trusted adviser is. If you don’t know anyone who can make a recommendation, then a great starting point is the Society of Later Life Advisers (SOLLA). SOLLA is a not-for-profit consumer protection organisation set up to protect potentially vulnerable individuals from unscrupulous or inadequately qualified financial advisers. Their robust accreditation process is the most arduous test of knowledge, skills, and attitude I’ve undertaken in my 53 years in financial services. Also, it isn’t a once and for all “tick in a box”; the entire accreditation process must be undertaken every 5 years.

A Deep Dive into Insolvency and Restructuring with Claire Middlebrook of Middlebrooks Insolvency Practitioners

Claire Middlebrook stands out in the ever-evolving world of insolvency and restructuring with her hands-on experience and unique perspective. Having kick-started her career with Arthur Anderson and eventually launching Middlebrooks, her trajectory speaks volumes about her expertise in the sector. As businesses grapple with financial challenges, Claire’s approach offers a mix of pragmatic solutions and a deep understanding of the landscape. In this discussion, we’ll unpack the latest trends, challenges, and solutions in the insolvency space, drawing from Claire’s extensive experience and the case studies she’s encountered over her career. Join us for a candid and informative conversation.

Claire, thank you for joining us today. Please start by providing an overview of your background in insolvency and restructuring and how you became CEO of Middlebrooks.

I started Middlebrooks in 2015. Previously I had been a partner in a top 50 accounting firm. I wanted to start my own boutique restructuring and insolvency firm that was at the centre of positive futures – and that’s the Vision at the centre of Middlebrooks.

Following university, I immediately entered the accountancy profession in the restructuring team of the then Arther Anderson in Leeds, where I began my training as a Chartered Accountant.

This was an exciting time in restructuring, and we were involved in many global restructurings, from logistics companies to photo printers and everything in between.

The part of my work that I have always enjoyed was speaking to the directors and individuals and helping provide them with a pathway to their own positive future. This generated the Mission of Middlebrooks, to work in a profitable and enjoyable learning team environment, finding a tailored positive future for individuals or companies in times of financial distress.

In 2005 I relocated from Leeds to my home county of Fife and have worked predominantly in the central belt of Scotland ever since. These experiences have allowed me to create a robust professional network up and down the UK and offer solutions across the four home nations.

Middlebrooks Insolvency Practitioners offers a broad range of services, including Company Voluntary Arrangements (CVAs), liquidations, and pre-pack administrations, among others. What trends do you see regarding professional assistance needed, and why do you think this is?

I have now worked in the insolvency and restructuring profession for 22 years, and of late, there is certainly a move towards the use of more formal restructuring processes. I believe that this is due to the more complicated needs of the companies that are coming forwards, but also that there is a greater awareness of what we in the restructuring industry can do.

When companies are facing financial distress, it is often easier to avoid difficult conversations and look to ‘ostrich’. Unfortunately, this then limits options when a process is needed. The current trend of administrations and CVA’s is due to the early intervention of recovery professionals, and in most cases, these cases do provide better outcomes for all stakeholders – including saving jobs.

The other trend currently is the use of CVLs. According to the Insolvency Service, the use of CVL’s (Creditors’ Voluntary Liquidation) in June 2023 was 21% higher than in June 2022. I believe that this trend is directly related to the COVID-19 pandemic and bounce-back loans.

Based on your experience, what are some common signs a business might be heading towards insolvency?

It’s difficult to generalise the signs of impending insolvency as each case can be different.

I have experienced a slow curve into an insolvency event based on declining market share/market conditions and a quick rush, often following a significant incident.

For those companies facing a slow descent, the signs from the outside usually begin with communications slowing down and emails being unanswered when usually the company is communicative. A further sign is being passed between different layers of management with no real resolution, and this often doesn’t need to be solely concerned with money. A general downturn in service standards accompanies the slow descent into an insolvency event – it is likely that management-level staff will also begin to leave.

Any significant incident can trigger an insolvency event – the key to working with these types of companies is open communication; ensuring that your central network of contacts feels able to share news can ensure that the incident doesn’t start a domino effect!

COVID-19 has had a significant impact globally. Specifically in Scotland and, more broadly, the UK, how has the pandemic influenced the rate and nature of insolvencies?

As I mentioned earlier, I am a significant supporter of what the government did during the unprecedented days of the pandemic. Regrettably, I also feel that the can was somewhat kicked down the road.

Prior to the pandemic, low-interest rates and a benign creditor landscape had allowed the much talked of ‘zombie company’ to continue. The pandemic offered a short reprieve for these companies.

Most of the insolvencies we handle within Middlebrooks are those who have suffered at the hands of the pandemic, hospitality, and retail both online and shop front. We treat these people using the legislation under which we operate but also with the Middlebrooks ethos – it’s a difficult time, and we carefully explain all options to the individuals.

That being said, there has been a rise in the number of insolvency cases where there is an element of fraud. Either theft by former directors or misuse of Bounce Back Loans. In those circumstances, we ensure that we can do what we can to gather those funds using the legislation to repatriate funds to the public purse.

What options do businesses have when facing financial difficulties, mainly due to unforeseen circumstances such as the pandemic and, more recently, energy and global commodity prices, particularly as you have experience in agriculture and construction?

Seeking early advice is by far the best way to maximise the best outcome. The key factor in what options are available is where the directors / Board are at in terms of a longer-term future.

Some Board members I have worked with are at the end of their rope. Normally, I am called in after months of stress, and the directors are tired. In those circumstances, I and the Middlebrooks team work to correctly close the business and protect the directors in their fiduciary duties.

In other circumstances where the directors and the Board are up for continuing if contacted at the right time, the range of options is more comprehensive and can be tailored to the circumstances.

This can involve anything from informal arrangements with creditors for debt forgiveness to more statutory arrangements such as administrations or CVAs.

Each of these options has its pros and cons, and it’s our role at Middlebrooks to sit with each company and work through the decision tree to ensure that the tailored solution is found. For example, a company that has prized contracts may benefit from a CVA, whereas the cessation of a limited company and sale to a third party through an administration process may prove the best option to save employee jobs.

Could you describe a particularly challenging case you’ve handled where you were able to help a company successfully restructure?

Over the years, I have had the privilege of working with many companies who have sought my advice at one of the difficult and often private times a company can face.

In one instance, I worked with a London-based firm in the specialist construction industry. This firm was a generational family business with a turnover of circa £20MIL. As with many firms, the initial lockdowns were hard, and coupled with the ill health of the financial director, HMRC debts built up.

In the initial consultation, the executive Board indicated they were tired and wished to give up.

Over the course of the following several weeks, it was discovered that a younger director who didn’t have a full seat on the Board wished to step up. The course of the assignment changed from administration to negotiation with HMRC and the Bank, which had provided a significant Coronavirus Loan.

It has been a great feeling to see those directors over the years and see them save the jobs of more than 200 people.

How can companies prepare and guard themselves against potential insolvency, especially in an unpredictable business environment?

The focus is knowing your business. In the ebb and flow of day-to-day trading, there can be lean months and fuller months. If this is the normal course of trading, then, whilst part of the stress of running a business, it is normal.

As such, really knowing your business does help seek that early intervention, thereby giving you options.

Many businesses will run with a budgeted cashflow, and my first piece of advice would be to ensure that your business has one if you don’t. That is the starting point.

Once your cash flow has been created, you can then run scenarios on the cashflow. For example, what would happen if a major client stopped using your services? Are you too reliant on that one client? Does your business need to diversify? These types of questions can assist in determining whether advice needs to be sought from a restructuring professional.

Given the topicality of the Bounce Back Loan scheme, what advice would you provide to a director who has taken a Bounce Back Loan for legal and legitimate purposes and cannot meet the repayment obligations? What options might they have to navigate this situation?

Currently, in 8 out of 10 situations, the topic of a Bounce Back Loan does exist.

At the risk of repeating, the Bounce Back Loan Scheme was, in my opinion, the right thing for the government to do at the time. However, it is also the right thing for the government to expect these loans to be ingathered for the public purse.

The COVID-19 pandemic has changed the way in which the whole world works, and this has led to the markets for some businesses not being there anymore.

It is true that the Bounce Back Loans were given with no personal guarantee. However, I have seen some financial institutions approach the directors of companies for repayment plans, even if the loans were used correctly. It is, of course, a personal choice as to what the director wishes to do in those circumstances, and we are not here to judge – the director could agree to take on the liability personally, but I would caution against a long-term payment plan as we have seen some significant interest rate rises which could affect that.

HMRC will not allow a director to strike off a company if there is a Bounce Back Loan. As such, the director can seek advice from insolvency professionals. Based on individual circumstances, experienced insolvency professionals can guide the director through the best-tailored process for them and their business.

This could include negotiating a payment plan if the company has a longer-term future or properly closing the company down, ensuring that the director does not incur any personal liability.

One of the benefits of early interaction with an insolvency professional is the time for them to set out route maps based on the information that they can ingather – the more time, the better information, which can lead to sensitised cashflows and future market conditions being tested against business plans.

It’s true that no one has a crystal ball, but making decisions based on research and information is the best way to progress and can assist in the tailored solution.

How do you approach working with the stakeholders involved in an insolvency process, such as creditors, employees, and directors?

Within an insolvency process, there are often multiple competing interests. However, there is often one common thread – it is a stressful experience.

When called in by the directors, they are the first stakeholders we meet. Normally directors are experiencing extreme stress, and, in many cases, this does lead to physical illness. At the outset, the team are always in information-gathering mode. We have several standard documents that do need to be completed from a statutory perspective, and this forms the basis of how we can provide advice and develop a tailored strategy for the company.

The main part of this stage is listening and understanding the journey that the directors and the company have been on up until that point. This narrative is then compared to formal accounts, and a full picture of the situation is formed. It is usual at this stage that we would uncover the priority issues, for example perishable items that we may need to deal with first from an asset perspective or indeed from a liability perspective those creditors who have gone further down the road of debt recovery.

This then gives us a ‘to-do’ list in order.

Irrespective of our priority to-do list when called in, our team at Middlebrooks speak with any employees.

An employee’s claim is complex and often needs multiple meetings and conversations to ingest the information, collate it, verify, and then send it to the government for processing. In our experience, early and often communication is vital for this group of stakeholders to reassure them. In addition, we work hand in hand with government agencies, such as PACE (Partnership Action for Continuing Employment), to get employees the information they need to make claims or seek new employment as swiftly as possible.

In any insolvency proceedings, once appointed, our role is to act on behalf of all creditors equally.

To this end, there are several documents that are sent to the creditors, and whilst we require to set out the legislation, I have always been in favour of ‘tabloid style’ communication for creditors. In many cases, we face creditor apathy.

This can sometimes lead to making our role difficult – as we act on behalf of creditors, we often need their input, but when faced with mountains of paperwork, I can understand why this may turn people off responding!

In my experience, creditors are most interested in whether they will receive funds back from the process and when. Whilst it is right and proper that they be given lots of information to make decisions, they are also running their own businesses, and even institutional creditors don’t often get involved in the process.

There have been significant changes to the legislation to ease the burden of screeds of correspondence to creditors – such as the use of portals which most IPs offer. However, to get the most out of the process for all, I believe that we could go further in this area.

Can you share the steps a business should take once they realise they may face insolvency?

The main area is to ensure you have limited your potential personal liability and to avoid the pitfalls, the following areas should be considered:

  1.

You are under a duty to preserve its assets and minimise its liabilities.

2.

You must ensure that any action you take will not result in any creditors or members being preferred or given an advantage, in particular connected parties.

3.

Further credit must not be taken for any goods or services.

4.

You should not accept the delivery of goods already ordered which have not been paid for.

5.

No assets should be disposed of, except to the extent necessary to meet essential costs and expenses, and you should take care not to allow any of the company’s creditors to obtain possession of assets pending investigation by a subsequently appointed liquidator.

6.

You should not supply any goods or services on credit to existing or potential creditor.

7.

Cash or cheques received by the company should be handed over to us for payment into a separate client’s account.

8.

Any overdrawn bank account must not be used.

9.

Adequate insurance coverage must be maintained. Please advise us immediately if insurance cover expires before the date of the meetings.

10.

Company Credit cards should not be used by staff.

11.

No payments should be made to existing creditors.

12.

Goods should not be dispatched with carriers or hauliers who are owed money.

Restructuring and insolvency professionals are well placed to have sensitive conversations surrounding your business – most offer an initial free meeting; in these circumstances, it is best to seek an early conversation to ensure that you protect your own personal position – don’t wait until five to midnight!

In a digital age where cybersecurity and operational resilience are paramount, the European framework known as DORA (Digital Operational Resilience Act) has emerged as a significant touchstone for financial markets. This act illuminates the pressing need for financial institutions to bolster their digital defences and streamline operations, particularly against the backdrop of increasing cyber threats and ICT disruptions. As we delve into this intricate framework, we sit down with Junaed Kabir, Partner and Managing Director of Parva Consulting, to uncover its profound implications, specifically for Luxembourg, a notable epicentre in the global funds industry. The insights provided shed light on the challenges ahead and highlight the potential opportunities for those ready to adapt and innovate.

To begin, please clarify the essence of DORA and its significance to the funds industry?

DORA (Digital Operational Resilience Act) is a European framework that aims to establish a robust and resilient approach to delivering digital capabilities in Financial Markets.

The requirement to ensure that organisations can continue resilient operations in the face of significant disruptions caused by cyber-attacks and information and communication technology (ICT) concerns is at the heart of DORA. DORA fosters the convergence of standards for ICT and cyber practises by offering a unified and consistent approach.

DORA covers five major issues: ICT risk management, incident reporting on ICT-related topics, administration and oversight of critical third-party providers, digital operational resilience testing, and information and intelligence exchange.

DORA underlines the significance of financial firms proactively identifying and categorising ICT assets in order to restrict inherent risks to acceptable levels. Financial institutions must develop effective risk management policies to protect themselves from cyber-attacks and disruptions by thoroughly knowing their digital infrastructure.

Luxembourg is a prominent hub in the global funds industry. How do you envision DORA specifically impacting this sector in Luxembourg?

The emphasis placed by DORA on strengthening operational resilience and defending against ICT-related risks will compel Luxembourg's financial institutions to reconsider their current processes and controls.

DORA will necessitate the implementation of new and more sophisticated rules, information technology controls, and resilience testing procedures. While some businesses, such as credit unions and investment firms, may already be in compliance in some areas, many will need to create totally new frameworks to meet DORA's criteria.

As the compliance journey evolves, it becomes increasingly crucial to incorporate critical stakeholders in the process. Information Security Officers, IT Officers, Risk Officers, and others must work together and contribute to achieve total compliance.

Can you delve into how the implementation of DORA might affect the daily operations of firms in the funds industry?

As Luxembourg-based financial institutions begin their compliance journey, it is obvious that DORA necessitates a proactive and dynamic approach to operational resilience and risk management.

Given the prominence of Luxembourg in the global funds industry, the country's financial firms will need to embrace DORA's criteria in order to maintain their competitiveness and reputation. As the legislative process draws to a close, the Luxembourg financial sector must prepare to detect, monitor, and defend itself against an increasing variety of ICT-related threats. This includes adapting to the Act's requirements for robust ICT infrastructure, incident reporting systems, and comprehensive testing.

Are there particular challenges that Luxembourg-based funds might face concerning DORA that you don't foresee in other jurisdictions?

The adoption of DORA is expected to have a significant impact on the financial industry, requiring various reforms to comply with the new regulatory framework. DORA seeks to increase the operational resilience of financial institutions by pushing investment firms to make significant changes to their internal procedures, risk management systems, reporting, and transparency methods.

Many Luxembourg-based financial institutions benefit from the IT infrastructure of a parent firm that is not based in Luxembourg. Control, oversight, and incident reporting are frequently assigned to the parent corporation. This will have to change; under DORA, the Luxembourg organisation must be able to demonstrate complete ownership of the IT infrastructure.

Investment businesses will need to conduct a thorough examination of their internal procedures in order to identify flaws and potential sources of failure. To avoid disruptions caused by cyberattacks or technological failures, comprehensive operational risk management practises, such as the establishment of contingency plans and seamless communication between departments, will be essential.

DORA intends to impose higher transparency standards on investment firms, forcing them to provide more detailed and regular disclosures to regulatory agencies and investors. This will need the development of new reporting frameworks capable of capturing a greater range of operational risks and occurrences.

DORA implementation will increase compliance costs and resource allocation for investment firms. Adapting procedures and systems to satisfy the new criteria will necessitate a significant investment in both financial and human capital.

Investment firms will need to invest in advanced technology and cybersecurity measures to boost operational resilience. Cyber threats constitute a significant threat to operational continuity; therefore, enhancing cyber defences is vital.

DORA is a critical step towards enhancing the financial industry's technology and cyber risk management and resilience. DORA's goal is to offer a uniform regulatory framework that improves the industry's operational resilience across all EU member states by focusing on risk management, incident reporting, and oversight of critical third-party providers. Financial organisations must proactively embrace DORA's criteria to ensure their ability to withstand, respond to, and recover from ICT-related disruptions and threats, ultimately safeguarding the stability and security of the financial system.

What opportunities might the introduction of DORA bring for the funds industry, particularly in Luxembourg?

The implementation of DORA in Luxembourg opens several opportunities for the funds business, leading to increased growth, innovation, and competitiveness in the global financial market.

• Increasing Investor Confidence: DORA's focus on improving investor protection and market integrity has the potential to boost investor trust and confidence. This could increase the amount of investment in Luxembourg-based funds by attracting both institutional and retail investors.
• DORA compliance is projected to increase demand for professional advising services from financial consulting and law companies, which will help fund management organisations navigate the rule's complexities.
• Investment firms will need to modernise their digital infrastructure to boost operational resilience and cybersecurity, fuelling demand for fund-specific fintech solutions.
• DORA can foster innovation in the finance sector, resulting in enhanced productivity and cost-effectiveness.

DORA's implementation has the potential to improve collaboration and knowledge exchange across the funds industry, resulting in a more unified and forward-thinking financial ecosystem.

How should fund managers prepare for the implementation of DORA? What steps can they take now to ensure a smooth transition and ensure they are ready for January 2025?

Fund managers need to plan ahead of time for the adoption of DORA to ensure a smooth transition and compliance with the new regulatory framework. Early and planned action will help them mitigate hazards, streamline processes, and improve overall resilience. They can take the following critical steps:

• Start early: Fund managers should not leave DORA compliance until the last minute. Beginning early allows for a thorough assessment of the impact and the development of a well-structured plan.
• Conduct an extensive impact assessment: A detailed impact assessment is required to determine the scope of changes required to comply, determine policy and procedure gaps and opportunities for improvement.
• Dedicated Teams: Form a team of professionals from the legal, compliance, risk management, and IT departments to handle the implementation process efficiently.
• External experts: Bring in external specialists with regulatory compliance skills if necessary to gain a complete understanding of DORA's standards.
• Develop a Comprehensive Action Plan: The plan should include specific tasks, deadlines, responsible parties, and significant milestones to address the changes required for compliance.
• Participate in Regulatory Bodies and Industry Associations: Attend workshops and conferences to stay current on DORA compliance advancements and best practises.
• Make training and awareness a top priority: Inform staff from all departments about the significance of DORA and their role in compliance. Regular training sessions help to foster a compliance culture.
• Simulate disruptive events to assess the firm's ability to respond and recover, emphasising areas for operational resilience enhancement.

How does Parva Consulting support clients in preparing for and navigating regulatory changes like DORA?

Parva Consulting assists customers in preparing for regulatory developments like DORA, achieving compliance and improving operational resilience through professional consulting services.

•     Impact Evaluations:Parva Consulting will undertake a complete impact analysis, examining companies' operations, risk management systems, and procedures to discover DORA compliance changes.
•     Application of regulatory rules and best practices:Navigating complex regulatory changes requires experience and understanding. Parva Consulting provides guidance on DORA's requirements, as well as the interpretation of rules and best practice insights.
•     Creating an Action Plan:We support clients in developing and implementing strong action plans that outline activities, timelines, and milestones for DORA compliance.
•     Employee Education:Parva Consulting provides training programmes to guarantee that staff are well-informed and capable of contributing to compliance activities.
•     Technological Solutions:We aid in the identification and implementation of technological solutions for streamlined compliance processes, such as risk management and cybersecurity.
•     Ongoing Support:Parva Consulting provides clients in the funds industry with ongoing support and monitoring, keeping them informed of DORA-related changes, assisting them in adapting their compliance plans, and ensuring a smooth transition through the regulatory reforms to improve operational resilience and achieving a robust compliance framework.

The Roll of Private Equity in Africa

An interview with Nico Oosthuizen, Nio Captial

Mr. Oosthuizen, can you share a brief overview of your role at NIO Capital and your professional journey leading up to it?

My role and mandate as CEO is to ensure that all deployed capital invested is carefully managed and that each investment asset’s operational activities are closely monitored. To ensure that our clearly defined investment strategic growth plans are followed through the identification of the right investments and management of our key analysts. Our local funds exceed R3.2 billion, and I work closely with the investee companies’ operational and financial management to ensure that we achieve the medium and long-term goals of the fund.

The African private equity landscape has developed quite significantly over the last 20 years, especially in South Africa. We aimed to identify specific long-term capital growth investments with a dividend yield that is aligned with the Family Office’s vision. In our South African allocated investment funds, the key focus is on capital growth with a strong focus on mitigating the exchange rate deterioration. It is not easy, especially with the geopolitical risks the continent is facing at the moment.

Could you discuss the foundational values and principles that shape your firm’s private equity strategy?

We believe in a balanced approach with a strong focus on integrity and transparency throughout our investment portfolio.

Our ability to find a unique way of collaborating with the community to ensure upliftment in the investment areas through being open and honest with them about our ability in a project. To ensure that we can deliver on the initial forecast for both the fund and the community at large. Communities that need the upliftment will usually embrace the assistance and thereby ensure that there is a symbiotic relationship that delivers long-term results for everyone involved. Sustainability is deeply ingrained in everything we do.

Could you shed some light on NIO Capital’s investment strategy and philosophy, especially regarding the balance between risk and reward?

Our long-term asset investment strategy is always thoroughly researched to ensure that the investee companies are able to withstand any future market fluctuations.

With the positions we hold in other listed entities, there is always a strategic intent to be able to later exit an investment either through a buyout or by way of an IPO. We will also do a merger of similar investments into an already listed entity, making our future exit much simpler. Most of our industry consolidations are based on legacy assets from a first-generation entrepreneur. NIO found a way to create a long-awaited exit for these owners that had limited succession plans in place for the business. In typical PE strategy will be to consolidate a couple of businesses to cut costs and, as a result, drive sales and optimisation of business processes.

On your website, it’s mentioned that NIO Capital focuses on specific sectors. Please elaborate on why you chose these sectors and what potential you see in them.

• Energy & Mining, specifically renewable energy
• Food and Water Security,
• MedTech,
• FinTech, and
• Property sectors. (Development and listed entities)

NIO Capital plays a significant role in financial services, providing support for listings, restructuring, mergers, and acquisitions. Could you describe your approach to these services?

Our historical experience in the private equity sector has helped us to be able to identify future potential investee assets long before we invest. Through the services we offer, we can ensure that the vision and values of the management are aligned with our fund. This will make a good foundation for further involvement from the fund to invest.

How does NIO Capital decide when to take an active equity position through direct investment versus when to offer services for equity?

Once we have analysed the IM(Investment Memorandum) and completed our due diligence, we will assess if we can make a significant difference in the current position of the business. We use our established network to establish what we can do to improve on the current figures without making too many changes to the business or staff. Balance Sheet optimisation is at the heart of what we do to create a strong footprint to drive the future growth of the business.

What are the key factors you consider when evaluating a potential investment in a company? Are there specific qualities or criteria a company must meet to fit your investment mandate?

First is if it falls in our mandate and our sectors of investment. Secondly, we look at the balance sheet to assess what shape it is currently in and how additional capital will play a role in the growth of the business. Management plays a critical role in our decision. Without good management, the transaction will, most of the time, just be too risky.

In what ways does NIO Capital contribute to the growth and development of its portfolio companies post-investment?

NIO Capital contributes to growth in our investments through our deep sector knowledge of the sectors we have identified to be on our balance sheet for the long term. We only invest in sectors we understand thoroughly and have the in-house skills to add value to these investments.

How does your firm approach Environmental, Social, and Governance (ESG) factors in its investment decisions?

The firm has an ESG policy that we strongly believe in. The African landscape makes it difficult to navigate through these dangers, but through our extensive network in Sub Sahara Africa and the UAE we can quickly assess any possible investments that will not fall into our framework.

What trends are emerging in the private equity and financial services sectors as we move forward? How is NIO Capital preparing to navigate these changes?

In South Africa, there have been some regulatory changes where the regulators will implement Regulation 28 of the Pension Funds Act, which imposes limits on infrastructure investments, and the investments must be reported to the Financial Sector Conduct Authority. Direct infrastructure exposure across all asset categories cannot exceed 45% of a fund’s total assets, previously 30%. New limitations on direct asset infrastructure exposure across all categories of a fund’s total assets.

South African laws are evolving to ensure we know exactly who we’re dealing with in each transaction. FICA(Financial Intelligence Centre Act) now requires fund managers to conduct deeper due diligence on all beneficial owners and disclosure, which could include due diligence on the ultimate beneficial owners of the investors in a fund and transactions.

About NIO Capital South Africa and Mauritius:

NIO Capital is a South African and Mauritian based Private Equity firm focusing on providing private equity investments to a broad spectrum of companies across the

• Energy & Mining,
• Food and Water Security,
• MedTech,
• FinTech, and
• Property sectors. (Development and listed entities)

NIO Capital provides corporate finance services and serves as advisors to various key players from different industries, and prides itself as a strong company that focus on often overlooked opportunities within the financial services sector, such as industry consolidation structures, Balance sheet optimisation, and business model strategies, all of which require proficiency and the right people as per requirement.

Our current network provides us with an ever-increasing ability to assess, formulate and manage business strategies, particularly customised for the needs of each individual client.

NIO Capital is an investment and management company focusing on our family office and the expansion of our investments globally.

NIO Capital builds long-term relationships and mutually beneficial partnerships with our progressive and collaborative corporate culture. Sustainability is deeply ingrained in everything we do. Our experienced team manages many important relationships with leading clients, corporates, businesses, and Banks. Associating with the best employees, partners, and suppliers ensures everyone benefits together.

Our funds are structured into the following categories:

1. Renewable Energy and Mining - Hydrogen and electricity generation.
2. Food Security and Water Security:
3. Information Technology -Artificial Intelligence, MedTech and Fintech, Quantum Computing.
4. Financial Services (Pre and Post Investments cycle) - Listings, Debt Raising, Securitisation, Fund of funds investing

NIO is a truly private equity firm at its heart.

NIO has a number of investments in the non-listed as well as the listed space in various exchanges.

Listed Investments with strategic intent.

With the positions we hold in other listed entities, there is always a strategic intent. Most of our industry consolidations are based on the legacy assets of a first-generation entrepreneur. NIO found a way to create a long-awaited exit for these owners that had limited succession plans in place for the business.

Coal to Renewable (CTR)

During our last 8 years of investments, the group has always envisaged the switch to renewable and alternative energy sources. Coal remains the most available energy source around for the development and the fast population growing countries. Renewable projects’ costs have been reduced dramatically but are dependent on historic distribution networks that are, in some cases, old and unreliable.

Renewable Investments Strategy in Africa:

Since 2015 our various private equity funds have actively participated in the funding and development of various renewable energy projects. South Africa is currently in a big energy crisis that revolves around the lack of generation capacity due to a lack of maintenance. Fueled by internal political issues, businesses and the public have started resolving the issue themselves.

MedTech and Information Technology: 

Our long-term strategy is to focus on the constantly growing advancement in medical technology and the overall application of that in our business models for sustainable growth and profit. The result of these rapid changes is its effect on the mortality extension.