The Foreign Account Tax Compliance Act (Fatca) entails massive work for hedge funds.
Fatca compliance can be categorized broadly into four main areas: classification, registration, investigation and reporting, according to John Bohan, managing director, Europe and Middle East, for Apex Fund Services (Ireland) Ltd.
“First, you must classify all financial institutions into their Fatca definitions which determine reporting obligations, and each entity much be registered and their Global Intermediary Identification Number applied for,” said Bohan.
Each investor must be remediated or reviewed to determine domicile, tax status and citizenship against a prescribed set of criteria laid down by the IRS. Funds are responsible for reporting the capital, income and key identifiers of each reportable investor electronically after 2014.
Apex Fund Services has been steadily preparing for Fatca for a number of years as ongoing changes in regulation have demanded fuller and more complete reporting round the areas of AML, regulatory reporting and classification of hedge fund managers with the advent of AIFM.
The main work revolves around the remediation of investor files and ensuring that all information required under Fatca is laid out on the file and captured by the internal systems of whomever will be electronically submitting reporting post-2014.
“The logical appointee for this task has been the fund administrator as they sit on all of this information as a matter of course,” said Bohan. “Apex has undergone this exercise for the majority of its client base, and though it has been a somewhat painstaking exercise to ensure full compliance, it has brought a new discipline in collection, organization and dissemination of data.”
A large portion of Apex’s business has been built on compliance: compliance to industry standards, compliance to regulatory requirements and compliance to the demands of international reporting standards whether in the areas of risk, audit or disclosures for tax purposes.
Thirteen of its 34 offices are subject to regulatory requirements as a fund administrator whereas all 34 offices need to be compliant to Fatca requirements.
“As a result, more and more of our business revolves around dedicating the time and resources of staff, not just our compliance officers and internal audit, but all staff to reporting and data provision in response to global changes in the industry,” Bohan said.
UK Fatca is soon to follow and the world’s funds regions will all have their own Fatcas to ensure tax revenues are not lost. An immediate inflow of $7.69 billion is expected for the United States once the initial reporting begins to flow in. “It is a carrot worth chasing for any economy and not one that will be left loose hanging,” said Bohan.
