A new perspective for alternative asset managers
In this edition of Perspectives by Wells Fargo
- Industry trends and updates:
- Economic update: 2014 Economic Outlook: Finding balance
- Product focus: Custody and safe keeping
- Market overview: Fixed income market & portfolio strategy
- News and events: Upcoming events | In the news
Industry trends and updates
FATCA — A practical guide for investment funds in the Cayman IslandsThe US-Cayman Islands Model 1 Inter-Governmental Agreement (IGA) was signed and published on 29 November 2013. Read more
The US-Cayman Islands Model 1 Inter-Governmental Agreement (IGA) was signed and published on 29 November 2013. Whilst we are still awaiting the publication of the terms of the Cayman Islands domestic legislation that will implement the IGA (which we expect to be forthcoming in early in 2014), we wanted to take the opportunity to summarize our understanding of the requirements and responsibilities of Cayman Islands investment funds (Funds) under the IGA and how Appleby can assist with the Fund's obligations.
There are three broad categories under which the Fund's obligations under the IGA will fall — (i) registration with the IRS, (ii) due diligence to facilitate the identification of US reportable accounts and (iii) reporting to the Cayman Islands Tax Authority on US reportable accounts.
Registration with the IRS
Despite not reporting directly to the IRS, a reporting FI (i.e. the Fund) under the IGA is required to register with the IRS to obtain a global intermediary identification number (GIIN). The deadline for this filing is 31 December 2014. However, those entities registered on or before 25 April 2014 will have the advantage of being on the first list of GIIN numbers that will be released on 30 June 2014, which will be of comfort to contractual counterparties.
Under the IGA, a reporting FI is defined as any financial institution that is not a non-reporting FI. A non-reporting FI is an entity that is considered as being low risk in terms of tax evasion including certain FIs that are treated as deemed-compliant, have exempt beneficial owners (e.g. certain pension and retirement Funds) or are sponsored investment entities under the FATCA regulations. A definition of the entities deemed to be non-reporting FIs is set out in Annex II of the IGA.
An FI may appoint a sponsoring entity, provided they are authorised to act on behalf of the FI (such as a fund manager, fiduciary, corporate director or managing partner) to fulfil applicable registration requirements. This may be beneficial, for example, where there are several Funds under common management to be registered. The sponsoring entity would then agree to perform all due diligence, withholding, reporting and other requirements under the IGA on behalf of all FIs it sponsors.
Registration with the IRS will be the responsibility of the Fund, or the sponsoring entity, which must appoint a FATCA responsible office (FRO) for this purpose. Appleby Trust (Cayman) Ltd. (ATCL) will be able to assist with the administrative element of the registration process under instruction from the Fund, if required.
Under the IGA, reporting FIs are required to apply certain due diligence procedures in order to identify US reportable accounts. This process will be set out in a pre-established Compliance Manual, and will involve, inter alia, a review of the corporate books and records of the Fund (including the subscription agreements, due diligence materials, tax forms and the register of equity interests). This will also involve considerable coordination by the FRO with the administrator. The due diligence procedures are set out in Annex 1 of the IGA.
ATCL is familiar with the due diligence procedures set out in Annex 1 of the IGA and has performed analysis to identify any updates necessary to either their systems or processes in order to assist the Fund to comply with these procedures.
Reporting to the Cayman Islands Tax Authority
Under the IGA, reporting FIs will be required to report annually certain information on US reportable accounts to the Cayman Islands Tax Information Authority. The information that is to be reported and the timing of the information to be passed on to the IRS by the Cayman Islands Tax Information Authority is set out in the main body of the IGA.
The governing body of the Fund will need formally appoint the FRO. The role of the FRO is a specialized function that will be responsible for ensuring appropriate reporting to the Cayman Islands Tax Authority. ATCL will be able to contract with the Fund to provide such reporting for the Fund's governing body, if required.
As well as familiarizing themselves with their obligations under the IGA and ensuring they fully understand the status and requirements of the Fund, Fund governing bodies may also wish to consider other matters such as communications to investors in respect of FATCA and whether the Fund's governing and subscription documents require to be updated.
Appleby continues to advise its fund clients to obtain independent tax advice in respect of FATCA. Based on our understanding of the IGA, we consider that Funds should assume that they will be affected in some way by FATCA unless they are advised otherwise, regardless of whether or not the Fund has US investors or investments.
Appleby has taken significant steps over the last year in the preparation of its FATCA Implementation Programme. Appleby has instructed external auditors to produce an independently reviewed FATCA Compliance Manual, in addition to enhancing its FATCA Compliance Team with significant hires. Appleby is committed to ensuring that it plays a supportive role in helping its clients in respect of FATCA.
Appleby and ATCL will advise further in relation to FATCA and its implementation as soon as the Cayman Islands domestic legislation is passed into law.
RealSTP updatesWells Fargo Global Fund Services continues to offer new functionality through the industry leading RealSTP, offering real-time data transparency on trade confirmation, settlement, asset servicing, collateral management, and month end NAV production. Read more
Wells Fargo Global Fund Services continues to offer new functionality through the industry leading RealSTP, offering real-time data transparency on trade confirmation, settlement, asset servicing, collateral management, and month end NAV production. In November, WFGFS released v3.5, providing real time portfolio composition and counterparty activity reporting. Portfolio composition provides real-time insight on all portfolio holdings, including investment mix, issuer, sector, and geography, while Counterparty activity provides additional detail into counterparty operational exposure.
RealSTP v4.0 will be released in January 2014, providing real-time status on investor orders and transactions; investor compliance status (e.g., investor country/region; investor type; KYC status); and customized P&L reporting.
Future releases in 2014 will include full customized reporting across all Geneva related data; real time cash reporting; automated notifications of certain events (e.g., month end valuation pack ready for client approval); and improved integration with other Wells Fargo products.
2014 Economic Outlook: Finding balanceSustained subpar growth, low inflation, and Fed easing underlie the outlook for 2014. Read more
Sustained subpar growth, low inflation, and Fed easing underlie the outlook for 2014. A mixture of positive results for short-run growth have emerged, but also evident are the lingering long-run problems that cannot be solved by another bout of stimulus. Setting a more balanced course for fiscal and monetary policy will be key to reducing uncertainty and hopefully set the stage for improving, sustainable growth in the years ahead. Read the full report (PDF)
Custody and safe keepingWells Fargo Securities offers a full range of reliable and convenient custody and safekeeping services. Their trading customers can maximize settlement efficiency and also gain increased control over cash management and reporting with the following services. Read more
Wells Fargo Securities offers a full range of reliable and convenient custody and safekeeping services. Their trading customers can maximize settlement efficiency and also gain increased control over cash management and reporting with the following services:
- Free online access to trade Money Market Mutual Funds, as well as custody account activity, positions, statements, and confirms via the award winning Commercial Electronic Office® (CEO®) business portal
- Same day ACH settlement to Wells Fargo Bank, N.A. DDA accounts
- Pledge processing
- Access to portfolio analytics and accounting
These services are available at a very competitive fee structure with options for automatic payment from a bank account.
Fixed income market & portfolio strategyThis issue of the Market Summary package discusses: Timing the Taper: Economic growth and a deal in Washington shift investor focus toward the FOMC. Read more
This issue of the Market Summary package discusses: Timing the Taper: Economic growth and a deal in Washington shift investor focus toward the FOMC. Read the full article (PDF)
News and events
If you are attending one of these events please stop by. We'll have representatives at:
January 14, 2014
SALT Las Vegas
May 13-16, 2014
Las Vegas, NV
Daniel Johnson spoke on "Pricing: the meaning and impact of transparency" during Inside Reference Data's November webcast.
For more information on all our offerings and partner services contact your relationship manager or visit: wellsfargo.com/fundservices
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