Progress report
An assessment of hedge fund YTD performance in the face of renewed fears for a potential eurozone crash Read More
08/02/2012
Comment: Julian Korek
As US regulators continue to cast their net beyond US borders, advisers around the world are becoming acutely aware of its effect on their business. So what is 2012 likely to bring?
Dodd-Frank Act
The most significant change is, quite simply, SEC registration. Although by now the Dodd-Frank Act should be relatively old news, as the 14 February and 30 March deadlines loom there is still a lot
of attention, discussion and surprisingly some confusion around whether an investment adviser must fully register with the SEC or whether it can qualify for either the Private Fund Adviser
Exemption or the Foreign Private Adviser Exemption. Despite the onslaught of information on the topic, it is still unclear to many non-US advisers how relevant considerations (for example, office
in the US, separately managed account clients deemed US persons, adviser to ‘solely private funds’, $150m threshold) affect them and what these terms actually mean.
To that end, advisers need to be analysing the key considerations and determining where they fall in the spectrum of SEC registration; no easy task given the scope of the legislation. Now is the time to analyse the relevant facts and circumstances and determine whether advisers qualify for any of the exemptions or not. Where necessary, advisers should seek advice to ensure the above SEC deadlines are met.
Since the new regulations will force previously exempt advisers to register with the SEC and provide substantial disclosures regarding their business, it is expected that more frequent and thorough SEC examinations will be undertaken from now on. Furthermore, although the SEC has stated that it will not conduct routine examinations on exempt advisers, it can, nonetheless, subject any adviser to a targeted SEC examination and conduct an on-site review.
In addition, advisers that qualify for the private fund adviser exemption may not be exempt from the record-keeping requirements. The SEC has left room for these advisers to be subject to further record-keeping requirements and has given itself the authority to examine such records. Although the specific record-keeping obligations have yet to be determined, they may well result in significantly increased requirements for advisers and, as a consequence, increased compliance costs.
FATCA
Meanwhile, the world awaits the latest regulations from the US Inland Revenue Service (IRS) on the Foreign Account Tax Compliance Act (Fatca), which is widely expected to further phase the
introduction of Fatca, the latest attempt to combat US tax evasion.
The initial deadline to register with the IRS is 30 June 2013, but there is a lot of work to be done prior to signing up. The IRS requires that all foreign (non-US) financial institutions (FFI) are able to comply with Fatca. Crucial to signing up will be the ability to enhance and update customer data, reporting lines and communication between counterparties, including: custodians, hedge fund managers, investors, nominees and brokers.
Hedge fund managers will be largely reliant on their administrators to handle the data collection and reporting requirements, however, given that it is the fund directors that will need to sign the registration, fund managers will therefore need to provide the assurance that their agreements with the IRS can be adhered to. This requires that managers engage with administrators to plan effective Fatca implementation strategies, and to seek specific training and awareness of the scope of the legislation.
All this means a busy year ahead for advisers, compliance departments and administrators. With an ever-changing regulatory landscape in the US and UK, fund managers will need to be diligent,
flexible and responsive to ensure their compliance procedures and frameworks do not lag behind the
rising bar of regulation.
Julian Korek is founding member at Kinetic Partners. Additional contribution by Matt Haddow, consultant, Kinetic Partners
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60 seconds with... Kenneth Turchin
CAN YOU DESCRIBE YOUR CURRENT ROLE?
I have worked in public accounting and hedge funds and in the past eight years have been selling middle- and back-office services to the alternate investment industry. My role is to build relationships with clients, teach them about SS&C’s products and services, and ensure seamless transactions every time the firm launches a new fund.
IF YOU WERE DOWN TO YOUR LAST £1,000, HOW WOULD YOU INVEST IT?
I would buy THREE shares in Apple and hope for a repeat 383% return in the next five years.
WHAT WOULD YOU DO IF YOU WERE IN PRESIDENT OBAMA’S SHOES?
That’s one pair of size 12 shoes I do not want to be in!
WHO WOULD PLAY YOU IF THEY MADE A MOVIE ABOUT YOUR FIRM?
Kevin Bacon. He is a versatile actor and the centre of the entertainment universe. I am in sales. Everyone in the industry would be linked to me in six steps or less. My client list would be ridiculous.
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