UK: Treasury Is Adopting New Reporting Requirement Regarding Cross-Border Holdings Applicable To U.S. Investment Managers

Last Updated: 9 May 2011
Article by Julien Bourgeois, David Harris and Philip Hinkle

Many U.S. investment managers and other parties will need to consider by June 30, 2011 whether they are required to report to the Federal Reserve Bank of New York monthly "snapshot" information on a new Treasury form, "TIC SLT." TIC SLT is a new part of the Treasury International Capital reporting system, which allows the U.S. Department of the Treasury and the Federal Reserve to gather information on cross-border holdings and cross-border transactions.1 TIC SLT gathers information on U.S. residents' holdings of foreign securities2 and foreign residents' holdings of U.S. securities. Notably, an investment manager may be required to report as part of its TIC SLT (1) the foreign securities held by, and (2) the shares issued to foreign residents by, the U.S. mutual funds and U.S. private funds managed by the investment manager.

A "U.S. resident" is any "individual, corporation or other entity that is incorporated or otherwise legally established in the United States, including branches, subsidiaries and affiliates of foreign entities located in the United States." A "foreign resident" is any "individual, corporation or other entity legally established outside of the United States, regardless of the actual center of economic activity of the entity."3

This update provides an overview of the new reporting requirement as it applies to U.S. investment managers.

TIC SLT Report Requirement

TIC SLT provides a monthly snapshot from U.S.-resident "Required Reporters" (as discussed below) of the fair value of a Required Reporter's aggregate holdings of foreign securities ("holdings") and the fair value of a Required Reporter's issuances of securities that are held by foreign residents ("issuances"). The reporting entity must list the fair value of such holdings and issuances categorized separately by (1) type of holding (e.g., bonds, or equity securities) and (2) the country (a) where the foreign holding's issuer is organized or (b) in which the foreign holder of an issuance is organized or domiciled. The Required Reporter must also summarize all reportable holdings and issuances in certain broader categories such as type of issuer.

The Proposed TIC SLT Instructions provide specific guidance for investment managers on how to report U.S. funds' foreign holdings and ownership of fund issuances by foreign residents.4 However, investment managers will need to consider a number of complicated issues in assessing their reporting obligation under TIC SLT, such as consolidating aggregate positions on a complex-wide basis and among their affiliates, including proprietary assets of affiliates that are not asset managers (e.g., banks), and identifying exactly which holdings are reportable on TIC SLT. Many of these issues are not comprehensively addressed or even identified in the Proposed Instructions. As a result, investment managers should allocate sufficient time to consider unanticipated questions as they prepare for the first reporting deadline, which may be as early as July 25, 2011.

Required Reporters on TIC SLT

Required Reporters on TIC SLT include:

  • U.S.-Resident Investors – A U.S.-resident endinvestor that invests for its own account or on behalf of others in foreign securities that are held directly by the end-investor.5 An investment manager must report these types of holdings by its funds and other clients on the investment manager's TIC SLT unless it finds that another Required Reporter, most likely a U.S. custodian of its asset management clients, will report these holdings. While a Required Reporter would include a manager of a U.S. mutual fund that holds foreign securities, others could include, for example, a manager of a U.S. feeder fund that owns interests in an offshore master fund.
  • U.S.-Resident Issuers – A U.S. resident that issues a security in a foreign market where the security is held directly by a foreign resident. Such a Required Reporter could include, for example, a manager of a U.S. mutual fund that sells its shares to foreign investors.
  • U.S. Custodian for U.S. Residents – A U.S.-resident custodian that holds foreign securities for the account of U.S. residents (in which case the U.S.-resident end-investors need not file a TIC SLT report for those foreign securities).
  • U.S. Custodian for Foreign Residents – A U.S.- resident custodian or a U.S.-resident central securities depository that holds U.S. securities on behalf of a foreign resident.

Reportable Securities on TIC SLT

TIC SLT reports capture data relating to "reportable long-term portfolio securities."6 Reportable securities are treated as follows:

  • Foreign Securities held by U.S. Residents – Foreign securities include most securities (equity and debt) issued by entities established under the laws of a foreign country and all securities issued by international and regional organizations (even if these organizations are located in the United States).
  • U.S. Securities held by Foreign Residents – Securities issued by U.S. residents and owned by foreign residents. A security is deemed to be held by a foreign resident if the holder of record is not a resident of the United States according to the issuer's records.
  • Excluded Securities – Certain securities are specifically excluded from reporting on TIC SLT, including:
    • short-term securities with an original maturity of one calendar year or less;
    • CDs;
    • bankers' acceptances and trade acceptances;
    • derivative contracts as defined under the Financial Accounting Standards Board's Accounting Standards Codification ("ASC") 815;7
    • loans and loan participation certificates;
    • letters of credit;
    • precious metals and currencies held in the Required Reporters' vaults for foreign residents;
    • bank deposits;
    • annuities, including variable rate annuities; and
    • securities taken as collateral or received in repurchase/resale agreements and securities lending arrangements.

"Direct investments" (as opposed to "portfolio investments") must be reported on a different reporting system administered by the U.S. Department of Commerce and its Bureau of Economic Analysis ("BEA"). These direct investments include U.S.-resident ownership of 10% or more in a foreign company and vice versa, and most positions and transactions with a company with which the investor is in a direct investment relationship. This complex concept will undoubtedly raise interpretive questions (for example, some will question how it applies in the context of the masterfeeder arrangements discussed in the Proposed TIC SLT Instructions, as feeders often hold more than 10% of a master fund).

Reporting Level and Consolidation

A Required Reporter must file a single report of the reportable holdings and issuances of all U.S.-resident parts of its own organization (including funds managed). The reporting entity (in theory) is the top U.S.- resident entity within its organization. A reporting entity only need file a TIC SLT report if the consolidated total value of all reportable holdings and issuances across its organization is equal to or exceeds $1 billion (the "Exemption Level") on the last business day of the reporting month ("Reporting Day"). The consolidated total includes reportable holdings held by all U.S.- resident parts of the reporting entity for their respective accounts and for customers and reportable issuances for all U.S.-resident parts of the reporting entity and "investment companies, trusts, and other legal entities created by the reporting entity."

The consolidated total should be calculated based on the fair value of securities as of the Reporting Day in accordance with ASC 820 using the spot exchange rate as of the close of business on that day.

These broad consolidation rules could capture a large number of U.S. investment managers directly or through the activities of affiliates.

Reporting Schedule

The Reporting Days are currently scheduled to be June 30, September 30, and December 30 for 2011 and the last business day of each month thereafter. Once the consolidated total of reportable holdings and issuances is equal to or greater than the Exemption Level on a Reporting Day, a Required Reporter must submit a TIC SLT report for that Reporting Day by the 23rd calendar day of the following month ("Due Date") (or the next business day of that month if the Due Date falls on a weekend or holiday) to the Federal Reserve Bank of New York electronically or via post or fax. Once a Required Reporter has had to submit a TIC SLT report during a year, the entity must submit a report for each remaining month in that calendar year regardless of whether the entity still has consolidated total reportable holdings and issuances equal to or in excess of the Exemption Level.

Penalties for Failure to File

The TIC SLT reports are authorized and required by an Act of Congress.8 There is potential civil and criminal liability for failure to file required reports. Any person that fails to file a required report may be subject to a civil penalty of between $2,500 and $25,000. Any person that willfully fails to file a required report may be subject to criminal prosecution, up to a $10,000 fine and imprisonment for up to one year. In addition, the requirement subjects to the same penalties, officers, directors, employees and agents of any entity with filing obligations.

Conclusion

U.S. investment managers (and notably fund managers) will need to consider their obligations under the TIC SLT reporting requirement. Investment managers should consider whether they or their custodians are fulfilling the new reporting obligations regarding their holdings and issuances. In addition, in connection with assessing their new reporting obligations under TIC SLT, investment managers would be prudent to consider whether they are fulfilling their reporting obligations under the other components of the TIC reporting system and other related Treasury, Fed and BEA reporting regimes.

Footnotes

1 For an overview of the other parts of the TIC reporting system, and other related reporting regimes that may also apply to U.S. investment managers or their affiliates, see Julien Bourgeois and Philip Hinkle, Foreign Holdings and Transactions with Foreign Persons: Reporting Responsibilities of U.S. Investment Managers, THE INVESTMENT LAWYER, Vol. 15, No. 9 (Sept. 2008).

2 Only "long-term" foreign securities are covered by TIC SLT, meaning securities (equity as well as fixed income securities) with no contractual maturity or an original maturity of greater than one year. Holdings of short-term securities (i.e., with a maturity of a year or less) and CDs, among other things, are not reportable on TIC SLT. See Proposed Instructions for the Monthly Treasury International Capital (TIC) Form SLT, June 30, 2011 available at http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/formst.aspx (hereinafter, "Proposed TIC SLT Instructions").

3 See Proposed TIC SLT Instructions.

4 Id.

5 An end-investor is an entity that invests in securities for its own account or on behalf of others, including asset pools, such as managers of mutual funds.

6 These include equity as well as debt securities. Reportable long-term equity securities are "long-term" securities if they have an original maturity of more than one year or no contractual maturity. They include, for example, common stock, preferred stock, equity interests in funds and equivalent investment vehicles, depositary receipts/ shares, privately placed interests and interests in private equity companies and venture capital companies, and all other equity interests. Reportable long-term debt securities include, for example, registered and bearer bonds and notes, convertible bonds, asset-backed securities and floating-rate notes, and all other long-term debt instruments.

7 Derivatives are reportable on another form, "TIC D." See Foreign Holdings and Transactions with Foreign Persons: Reporting Responsibilities of U.S. Investment Managers.

8 See 22 U.S.C. 286f; 22 U.S.C. 3103; E.O. 10033, as amended.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions