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 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.