The Dodd-Frank Wall Street Reform and Consumer Protection Act,
to give it its full title, is somewhat wider ranging than to affect
just institutions on Wall Street.
The basic premise of the act is that closer order is being taken
on fund managers and advisors as it requires those who advise US
investors on securities to register with the US Securities and
Exchange Commission (SEC) irrespective of the location of their
place of business.
This will have an impact on those advisors and managers who
previously took advantage of the 'Private Investment
It applies to all who charge fees for advising on the buying and
selling of securities and so can apply to fund advisors where the
acquisition of securities is a bi-product of activities even though
the core assets that they deal with may not be.
The act requires those investment advisors who fall within its
remit to register with the SEC by the 21 July 2011.
In brief, the act requires the registered entities to maintain a
compliance programme and a code of ethics as well as certain books
and records. They will also be subject to custody rules and be
required to face SEC examination and fulfil certain reporting
There are exemptions from having to register, the primary of
which, for non-US practitioners is the Foreign Private Advisor
Under the FPA exemption, an advisor need not register if they
have no US place of business, no more than 14 US customers in
total, less than $25m of assets under management for those US
clients and investors and does not carry out any marketing
activities in the US.
There are other exemptions including a Venture Capital Fund
Advisor exemption, a family office exemption and Private Fund
Advisor exemption for those with less than $150m of assets.
The way forward
It would be advisable for all investment advisors and managers
to introduce procedures to assess the impact they have with US
investors to see whether they currently are, or in future will
become, subject to the need to register and, where necessary, seek
advice from fund services professionals. We, of course, will be
happy to help with this process.
The Foreign Account Tax Compliance Act (FATCA)
Another piece of US legislation that may have an effect in
offshore jurisdictions is FATCA, which requires all foreign
financial institutions, including investment funds, to enter into
an agreement with the Internal Revenue Service to disclose
information on their investors whether they are either US
individuals or US owned entities.
Failure to do so will result in a 30% withholding tax being
applied in the US on any 'withholdable' payments to non-US
institutions whether they hold US assets or not.
The full provisions of this act are due to be introduced at the
beginning of 2013. Preparation will be the key to ensuring proper
compliance and removing the risk of withholding tax being
We will keep you informed of developments over the coming
Is there anything else on the horizon?
The AIFMD, Dodd-Frank and FATCA are all symptomatic of the
desire by governments and regulators to ensure we do not have the
lapses in regulation, perceived or otherwise, that played a part in
the financial crisis of 2008, the effect of which will continue to
be felt for some time.
There will no doubt be further regulatory changes in the future,
for example, there is some talk of the provisions of Dodd-Frank
being expanded to other asset classes such as direct real
These changes should not present a barrier to growth for quality
funds service providers in properly regulated financial centres
such as Jersey and we are confident that any changes will be met
positively by the industry.
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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