What services are financial institutions most commonly
There are various types of services that financial institutions
and fund managers look to outsource depending on their size,
budget, in-house capabilities, and purpose. In the Investment Funds
arena, most funds do not have employees, and therefore hire a
variety of service providers to accomplish their objectives. A Fund
or Fund Manager may outsource its tax compliance function, its
bookkeeping or accounting, its administration, its IT services,
trading or many other functions.
You direct DMS' team of outsourcing specialists –
what does this involve?
If you're looking at the Fund itself, at DMS we can assist
the Fund and ensure that it's compliant with its International
Tax Compliance obligations, by providing a fully outsourced
solution for the Fund, by taking care of the registration of the
Fund for its GIIN (Global Intermediary Identification Number) on
the IRS portal, being the Responsible Officer & Principal Point
of Contact for the entity, ensuring the fund follows the
appropriate guidance under the jurisdiction's regulations to be
compliant for both FATCA and the Common Reporting Standard,
properly classifying investors under these rules, and filing
accurate and correct returns under the regulations with the
relevant tax authority.
We also see Investment Advisors (mainly in Europe and Asia) who
set up Cayman Islands based Investment Managers wanting to
outsource certain aspects away from the home jurisdiction of the
Advisor. These include keeping the books and records of the Cayman
Manager offshore, approving and making payments on behalf of the
Fund by the Cayman Manager's independent director, executing
trades and reviewing the activities of the Advisor.
What are the benefits of outsourcing?
In the scenarios I've noted above, there are clear benefits
to outsourcing certain functions. With the ever-changing legal and
compliance environment that the Fund industry finds itself in, it
is beneficial to both the directors of the Fund and to the
Investment Manger to have a reliable and trustworthy partner with
whom they can do business. It is also particularly helpful when
such a partner can offer combined – or a one-stop solution
– eliminating the need for and complexity of engaging
multiple service providers.
Having the expertise in-house isn't always practical, and
can sometimes be very costly, compared to outsourcing. As a result,
it is sometimes more beneficial from a cost perspective and from an
efficiency perspective to outsource certain responsibilities.
What are the challenges or threats of outsourcing? How can the
lead company protect its client list and brand identity when
outsourcing services to a third party?
Finding the right partner, and treating the relationship as if
it were a partnership is key, and this can sometimes be the biggest
challenge and threat to outsourcing. Getting this wrong up front
can cause significant inefficiencies which can lead to a tenuous
relationship. In terms of protecting the lead company's brand
and client lists, appropriate confidentiality agreements must be
put in place and these agreements should also include the
appropriate non-compete clauses. The firm doing the outsourcing
should also satisfy itself that the firm who receives it
information has adequate cyber security policies and procedures in
place to protect the data.
Have you seen increased demand for outsourcing following the
financial crises, as companies look to streamline?
Yes. With the increased regulatory framework on both Funds and
Investment Managers, more and more functions are being outsourced,
as firms look to take advantage of the benefits outlined above.
Is there anything else you would like to add?
Outsourcing within the Cayman hedge fund world isn't what
you may think of when you hear outsourcing typically. As most funds
have no employees and it's up to its Board of Directors to
operate the Fund, many functions are "delegated" or
outsourced. Ensuring that each party understands the role and
function of the other, and ensuring that all parties work together
to ensure the success of a Fund is paramount to success. Finance Monthly
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Investment funds with high net worth individuals as investors will need to have a client agreement with their high net worth investors.
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