Written by: Liz Salecka
With the implementation of FATCA fast
approaching, the challenges for fund
administration companies are proving
significant. Liz Salecka talks to some
companies on the front line about the
impact the legislation is already having.
Having guided their clients through the
registration process for the Dodd Frank Act, the 86 fund administration companies
in Jersey and the 52 in Guernsey now have to come
to grips with a trickier piece of US legislation: the
Foreign Account Tax Compliance Act (FATCA). This requires all Foreign
Financial Institutions (FFIs) to identify investors who are US citizens and
report on their holdings and transactions to the Internal Revenue Service (IRS).
The compliance task is so huge, according to Barry McClay, Chief
Operating Office at Ipes in Guernsey, that it’s likely to prove one of the
biggest challenges that the financial services industry has faced worldwide.
“It’s not just an onshore/offshore issue, and it’s not exclusive to the funds
industry,” he says, pointing out that it applies to banks and insurance
“FATCA is much more onerous than Dodd Frank as it is very likely
that many more funds and trusts in Jersey will be caught by it,” adds Tui Iti,
Group Risk and Compliance Officer at Ogier in Jersey.
Richard Hughes, Senior Manager in Business Development at Vistra,
takes the view even further. “FATCA will a"ect everybody 100 per cent. We
have all had to accept that FATCA will impact all of us – no-one is outside it
or not caught by it,” he says.
According to Hughes, one of the biggest challenges presented by FATCA
is the lack of clarity, and the protracted period of time it has taken to
produce the level of granular details needed to work from. All FFIs are
required to register with the IRS by 30 June 2013, despite the IRS only
releasing its proposed regulations and guidance in February this year.
Iti agrees, and notes that there is still some uncertainty with FATCA and
the strategy that should be pursued. “Until those requirements are !nalised,
that uncertainty will remain to some extent,” he says. “We do need to make
our fund clients more aware of FATCA, to advise them and guide them
through the registration process with the IRS, and we’re in a better position
to do this now that the latest FATCA regulations have just been released.”
However, at Whitmill Trust, Claire Keeney, Senior Manager in the Funds
Department, believes her company’s client base of expert or institutional
investors are aware of the changes and requirements emanating from
FATCA. “They are proving very easy to work with in this regard,” she says.
“I believe FATCA presents bigger problems for private clients, who are also
affected by the legislative changes, and I expect there will be a percentage
of these clients that have been less exposed to its technicalities so far.”
Work is underway
The publication of proposed regulations for FATCA has enabled many
fund administrators to implement major projects to prepare for the
“FATCA is very broad-based regulation that will have an impact
on the industry as a whole. We have signi!cant resources aligned to it
and fully expect it to involve system changes and technology changes
as well as changes to our overall business model,” says Paul Cutts,
Country Head, Channel Islands at Northern Trust, the largest fund
administrator in Guernsey. He also points out that his company has
put a global project team in place to work on FATCA’s implementation
across multiple jurisdictions.
One of the first objectives for many companies has been to conduct
a detailed gap analysis, which is particularly pertinent given that
the FATCA regime brings new information gathering and reporting
requirements. For example, all funds will be required to not only identify and report on primary US investors in their funds, but also US
citizens who are indirectly investing in their funds.
Ogier has already conducted an analysis to identify the data that it
holds on behalf of clients, and is implementing processes to gather
other information that is needed. Similar work is underway at Ipes,
where Operations Director Karen Haith points out: “We must
remember that FATCA is not just about considering whether investors
in funds are from the US or not. You also have to look through the
investors to !nd out who the bene!cial owners are. With Dodd Frank,
we didn’t have to introduce new systems or processes, but FATCA
undoubtedly calls for new processes, greater IT functionality and
enhanced reporting by our systems.”
Vistra has also started a data-analysis project. “I believe that one of
the biggest challenges will come from having to seek more information
from individual private-client investors in funds, who have already
been integrated in the course of due diligence, and who may see this as a further invasion of their privacy,” says Hughes. Many fund
administrators also foresee major changes to their internal processes
and documentation as well as a need for additional resources and
investment in staff training. “At Whitmill, we will need to have new
compliance (policy and procedures) manuals in place; introduce a
standardised system of reporting; and ensure that all our staff have
the appropriate training,” says Keeney, noting that FATCA also calls
for the appointment of a Chief Compliance Officer.
Weighing up the costs
FATCA also looks set to bring significant costs for all fund
administrators. “It is anticipated that for us as a group, the costs could
reach hundreds of thousands of pounds – if not millions,” says Hughes,
who points out that all of Vistra’s 20 offices worldwide will be affected.
“FATCA is definitely going to be a very costly project, and will have
a huge impact on our resources, as well as being a distraction to our
Meanwhile, Keeney points out that there will be a real cost to
each and every financial services business. “From a compliance
perspective, FATCA will be expensive both for clients and their service
providers, but we will both the share the burden of these additional
costs,” she says.
However, Ipes believes that end investors may take the brunt of
additional costs. “At the moment we don’t know what the full cost
ramifications will be, but it is very likely that end investors will be the
ones who end up paying for this. However, this will also be the case
in other sectors – banks will pass on the costs of FATCA to their end
customers,” says McClay.
There are also suggestions that FATCA may lead to further
consolidation in the industry. “Ultimately I think that consolidation
across the fund administration sector will continue. The landscape has
changed considerably over the last 10 years – and the barriers to entry
have increased substantially. FATCA is yet another hurdle to get over
and larger more established players will be better equipped to rise to
the challenges it presents,” says McClay.
However, Keeney discounts the possibility of consolidation:
“What we have seen since the high-profile failures of the large
financial institutions during the financial crisis is that many
people now prefer to deal with smaller private independent companies,
as opposed to the larger companies, and this change in attitude has
also been evidenced among our client base over the last two years,”
While views may differ on quite what impact FATCA is going to
have in the short and the long term, there’s no escaping the fact that it
will be far-reaching, and fund administration companies are going to
have to be on their game to meet it.
Dodd Frank: up and running
In spite of the concerns presented by FATCA, guiding clients
through the Dodd Frank Act – under which all asset managers with
US clients and/or US-located assets will become regulated by the
Securities and Exchange Commission (SEC) unless they qualify for
exemptions – has proved a relatively painless process.
“Investment managers have been aware of the issues presented by
Dodd Frank for a while, and it’s not proving as difficult as many first
thought to meet its requirements,” says Richard Hughes, Senior
Manager in Business Development at Vistra, pointing out that
data required by the SEC was already held on systems due to
anti-money-laundering and know-your-customer requirements.
“From a systems point of view, there were no major changes or
enhancements we have had to make.”
“With Dodd Frank, we have been less challenged because we know
which of our clients have US investors. It was then a question of
considering whether or not they would be caught by any of the
exemptions, and working with them to meet the requirements they
would have to fulfil,” adds Karen Haith, Operations Director at Ipes.
Meanwhile, Paul Cutts, Country Head, Channel Islands, at Northern
Trust, points out that Dodd Frank has actually provided his firm
with new openings to offer additional support and services to fund
clients. “Many have taken this as an opportunity to look at the
information that is available and consider whether they want to
make any changes from a best-practice perspective,” he says.
However, for some companies, the publication of less-lenient-thananticipated
exemptions in June 2011 did create a flurry of activity.
“A number of managers who thought they wouldn’t be captured by
Dodd Frank requirements realised that they were, and approached
us for guidance. There has been a last-minute rush to get everything
in place so that they could complete their registrations with the
SEC by the deadline of 31 March,” says Claire Keeney, Senior
Manager in the Funds Department at Whitmill Trust.
No comments have been made on this post.