Cayman Islands

Meeting emergent regulatory challenges

Download the special report Cayman Islands Hedge Fund Services 2014

By Ras Sipko, Chief Operating Officer of Koger – Regardless of the differences in their intent and emphasis, both the Alternative Investment Fund Managers Directive (AIFMD) and the Foreign Account Tax Compliance Act (FATCA) impose considerable demands on fund managers with regard to data management and documentation.

According to a recent and widely cited global survey of hedge fund managers by KPMG International, the Alternative Investment Management Association, and the Managed Funds Association, the hedge fund industry has already spent more than $3 billion to comply with new regulatory requirements, and considers FATCA and the AIFMD to be the most demanding in terms of cost, time, and need for external support.
 
The Alternative Investment Fund Managers Directive (AIFMD), initially published in the Official Journal of the European Union on July 1, 2011 seeks to provide a regulatory framework for monitoring and supervising risks posed by alternative investment fund managers (AIFMs) and the alternative investment funds (AIFs) they manage and market.
 
The first step in AIFMD compliance involves AIFMs registering with national regulators to become “authorised,” a process that requires AIFMs to provide a wealth of data to their home state about themselves and the funds they manage. This includes but is not limited to:

  • Identities of the AIFM’s shareholders or members that have qualifying holdings and the amount of those holdings.
  • Identities of any master AIFs, and any underlying feeder funds. 
  • Depositary and custodial arrangements for each AIF 
  • Remuneration policies and practices. 
  • Information disclosed to prospective investors before they actually invest. 

Once authorised, AIFMs are expected to comply with the provisions and mandates of the AIFMD, some of which include:

  • Specific reporting requirements.
  • Transparency with regard to fund valuation and accounting procedures. 
  • Internal controls and safeguards for electronic data processing and electronic record keeping 

The deadline for the AIFMD to be implemented by European Economic Area (EEA) Member States was July 22, 2013. The one year transitional period/extension that certain EU AIFMs and non-EU AIFMs qualified for will end on July 22, 2014.
 
FATCA legislation, slated to take effect on July 1, 2014, was established by US lawmakers to combat tax evasion by US taxpayers with foreign accounts by imposing mandates on individual investors, US and foreign financial institutions (FFIs), and foreign governments.
 
Becoming a participating FFI is a process within itself that involves entering a binding agreement with the Internal Revenue Service (IRS) to:

  • Obtain sufficient information on every account holder to identify US accounts, and comply with verification and due diligence procedures in identifying these accounts.
  • Report annually certain information on US accounts, and complying with requests for additional information regarding these accounts. 
  • Deduct and withhold 30% from the withholdable portion of any pass-through taxable US source payment that is made to a recalcitrant account holder or a Non-Participating FFI. 

The regulatory scrutiny that hedge funds are now subject to necessitates that fund managers and administrators have access to technologies that address both financially-oriented and compliance-oriented workflows. Koger is a world leader in the financial services software industry. Ten out of the twenty top fund administrators worldwide utilise Koger products to manage their AIFs. With thousands and thousands of funds under the management of our clients, we are forced to stay ahead of the curve in providing comprehensive solutions to meet emergent regulatory challenges.
 
If you would like to learn more, please visit us at www.kogerusa.com

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Download the special report Cayman Islands Hedge Fund Services 2014


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