Cayman Islands: Growth In FATCA And AIFMD Compliance

DMS Managing Director Derek Delaney and Executive Director Nicholas Parkes discuss the firm's innovative regulatory solutions with respect to FATCA and AIFMD, in Hedgeweek Special Report 2015.

DMS Offshore Investment Services ('DMS') Limited was established in the Cayman Islands by Don Seymour in 2000. Over the past 15 years it has grown into one of the industry's leading fund governance firms with over 200 people.

One of the big focuses for the firm is ongoing regulation, in particular AIFMD and FATCA. With respect to FATCA, DMS stole a march on its competitors in 2014 by establishing a FATCA Responsible Officer (FRO) role.

"Our principal, Don Seymour, identified FATCA as an area to work on three years ago. We got the teams set up, the systems and the processes set up so that when managers came to us, we were ready from day one to support them in respect to FATCA compliance," comments Derek Delaney, Managing Director of DMS Offshore Investment Services (Europe) Limited.

Whilst over half of DMS Group's clients have decided to use its FRO service, an equal amount of uptake has been seen among non-DMS clients. Part of this growth has originated from legal firm referrals, as Delaney explains: "Law firms would tell managers that they needed an FRO in place, but when it came to internally deciding who would take on that role a lot of these law firms began referring clients to us. We have built a lot of law firm relationships on the back of their endorsements of our FATCA solution."

The FATCA solution is delivered out of DMS's Cayman, Ireland and Luxembourg offices and supports all global funds. Whilst other firms are still ironing out the creases of their US FATCA solution, DMS has already moved on and developed the necessary policies for UK FATCA and the OECD Common Reporting Standards.

DMS Group has also developed a suite of AIFMD solutions. Not only does it have an AIFMD-compliant platform and registered AIFM (DMS AIF Management Company) it also offers Annex IV reporting services.

"Even when clients have decided not to go with a full European fund, they've still asked us to act as the Annex IV reporting party. During January 2015, we did 216 filings. Now, we are able to say to managers, 'We've got the AIFM in place, the platform, we've gone through a successful round of reporting, so any uncertainties that existed with AIFMD are now in the past'. The only unanswered question is when the funds passport will be made available to non-European managers," says Delaney.

Year-to-date the firm has won 57 mandates across AIFMD and UCITS, including one of the largest investment banks in the world. "In addition, we have over 78 clients for whom we're doing Annex IV and other global risk reports on EMIR, OPERA, CPO, etc. I would estimate that we will have more than 100 AIFMD/UCITS clients by the end of the first quarter 2016," adds Delaney.

"In addition to the mandates we've won, we've also taken on mandates to provide risk management support to other management companies; those where an investment manager has decided to set up their own entity in Luxembourg and they are putting one or two people on the ground but wish to delegate the risk management function," states Nick Parkes, who heads up the AIFM business in Luxembourg.

"The other function that has become a focus in Luxembourg," continues Parkes, "is more qualitative, i.e. can you identify a good trade. DMS can do this because we've been working with an 8-person strong investment firm for a period of time.

This means we are able to provide a real, qualitative oversight of how managers are performing. That type of substance is really resonating with the market."

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