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Darren Stainrod, head of UBS Fund Services, Cayman

FATCA is the next big reporting challenge

Interview with Darren Stainrod – “In the coming year, the biggest impact on administrators is going to be FATCA and the amount of reporting on investors that’s going to be required and whether that reporting is going to be to the Cayman government or directly to the IRS,” comments Darren Stainrod, head of UBS Fund Services, Cayman.

Over and above striking NAVs, providing valuations and reconciling positions, the emphasis for hedge fund administrators is now on middle-office “value-add” services as regulatory reporting requirements kick in.

FATCA is a hugely pervasive piece of regulation. Notes Stainrod: “It’s going to be the biggest thing that we look at over the next 12 months, not just in regard to the types of data that need to be provided but the fact that we’ll have over 15,000 investors to search against. We have to assist our fund clients to make sure investor files contain all the documentation which will be required by FATCA, and that assistance will have to continue to ensure our fund clients continue to be in compliance on a go-forward basis for new investors.”

The majority of Cayman funds are managed by US managers. Having the reassurance that their administrator is doing everything necessary to keep on top of the key issues is therefore a key differentiator for firms like UBS Fund Services.

Adds Stainrod: “For FATCA the heavy lifting will expected to be done by the administrator. We’ve got a notification going out shortly to clients to keep them updated on what we’re doing. The details of FATCA haven’t been finalised yet but we just want to update them on where we are and how we’re approaching things.”

Regulation is changing the nature of fund reporting. Form PF in the US, the six-monthly FSA hedge fund surveys in the UK, short position reporting introduced by the Hong Kong Securities and Futures Commission this year; clients need to be sure that they are capturing all the relevant data.

“I was speaking to one client recently who has more than 250 separate reports and surveys that they have to complete across their portfolios, so first and foremost it’s about identifying all of the regulatory and other reports that they have to provide,” says Stainrod.

What this means, of course, is that the costs of compliance are rising. For administrators, one of the middle-office challenges is ensuring that the data provided for reports is normalised and consistent. With fundraising so tough today, managers need to avoid reputation risk because of slack, inconsistent reporting; regulators and investors alike won’t allow it.

Stainrod confirms that for Form PF, the firm uses a data repository provided by a third party vendor.

This repository is populated with as much data as they can provide from their systems, which Stainrod estimates to be around 70 per cent: “At the end of the day, some of the questions can only be answered by the manager alone, relating to things like the use of leverage, sources of trading etc. The system combines data from various sources and allows the manager to e-file it with the SEC.”

Right now, says Stainrod, the firm’s focus is on building out its investor reporting capabilities to provide customisable reporting data, “not just for regulators but institutional investors who want to receive these reports independently of the manager”.

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