NED Audit Committee Workshops - March 2012

The new US Foreign Account Tax Compliance Act ("FATCA") regime will have a significant impact on most Channel Island's businesses in the finance industry. The proposed regulations were issued on 8 February 2012.

FATCA has important implications for you in the asset management industry, as it will:

  • Significantly increase the types of payments that could be subject to US withholding tax, such as direct or indirect payments of gross proceeds, or payments on certain swaps, and the number of entities that could have liability for US tax on such payments, including offshore funds and offshore distribution channel intermediaries that hold, or through which others hold, direct or indirect interests in US investments
  • Expand the population of entities that will have US tax information gathering, withholding, and reporting responsibilities and potential financial exposures for non-compliance
  • Increase the business risks arising from relationships with third-party distribution intermediaries, through which indirect investors hold interests in funds, and with service providers upon which funds may rely for compliance
  • Impose US tax documentation requirements on direct and indirect US and non-US investors
  • Force many in the industry to modify internal systems, control frameworks, processes, and procedures to meet FATCA compliance requirements

Wendy Dorman led NED Audit Committee workshops that ensured Non-Executive Directors gained enough information on the subject to enable NED's to ask the right questions to investment advisors and administrators that are planning for the impact of this legislation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (''the Act'') was signed by President Obama on July 21, 2010. Asset managers that have US clients or US investors in the funds they manage may be required to register as investment advisors with the US Securities and Exchange Commission (SEC) due to changes brought about by this Act. Further, those advisors with a place of business in the US, from which investment decisions are made, may also be required to register. The Act is likely to have a significant impact on asset managers around the world that were formerly exempt from registration.

Exempt Reporting Advisers. Advisers relying on either of two exemptions—as advisers (1) to venture capital funds or (2) to private funds with less than $150 million in assets under management—will be considered “exempt reporting advisers.” Although not required to become registered with the SEC as advisers, or to come into compliance with all of the provisions of the Investment Advisers Act of 1940 (“Advisers Act”), exempt reporting advisers will nonetheless be required to submit regular reports to the SEC and be subject to SEC examination.

Risk of non-compliance and SEC's enforcement capabilities:

  • Monetary penalties
  • Imprisonment
  • Disclosure of SEC actions on all marketing material for up to 10 years
  • Restrictions or prohibitions from US markets
  • Restrictions or prohibitions on US investors/clients

Chris Stuart explained why US regulation is impacting the Channel Islands so heavily and shared his experience on working with Investment Advisory clients that are grappling with the impact of the US Dodd-Frank Wall Street Reform and Consumer Protection Act.

The presentation attached gives some of the highlights covered in the workshops. If you have any queries, please do not hesitate to contact Paul Silcock, Nicola Mills or your usual PwC contact.