CPOs, CTAs and fund managers – May 2014

FATCA Update

As the Foreign Account Tax Compliance Act (FATCA) is implemented, more countries have entered into intergovernmental agreements (IGAs) with the U.S. which should ease burdens on offshore funds and investment managers that qualify as foreign financial institutions.  FATCA is aimed at ensuring that U.S. taxpayers do not avoid paying income tax on income derived from foreign sources.  Among other things, FATCA requires that foreign financial institutions register with the IRS, perform additional due diligence on investors to determine if any are U.S. persons, report certain information to the IRS, and when necessary, withhold a portion of payments to investors.  To date, several countries, including the Cayman Islands and the United Kingdom, have entered into Model 1 IGAs with the United States.  The Model 1 IGA allows a foreign financial institution that registers with the IRS and obtains a Global Intermediary Identification Number (GIIN) to avoid having to enter into a foreign financial institution agreement (FFI Agreement) with the IRS.  Foreign financial institutions may begin obtaining GIINs now and have until December 31, 2014 to do so for reporting purposes.  Other countries including Bermuda and Switzerland have entered into Model 2 IGAs with the United States.  Generally, foreign financial institutions in these and other jurisdictions will need to satisfy more onerous requirements such as entering into FFI agreements with the IRS.  The registration deadline for foreign financial institutions in non-Model 1 IGA countries is June 30, 2014.

SEC Announces Initiative to Examine “Never-Before” Examined RIAs

The SEC has announced an initiative to examine investments advisers that have been registered with the SEC for three years or more, but have never previously been examined.  The SEC also stated that examinations will focus on areas of customer protection including compliance programs, regulatory filings and disclosures, custody, marketing and portfolio management.  In addition to its initiative, the SEC is also hosting regional meetings where the SEC will provide further information concerning the examination process.