The global financial crisis of 2008 changed the entire world of financial services, including the alternative investment market, and precipitated the rapid expansion of regulatory initiatives. New regulations, combined with increasing reporting demands from investors, have created an environment with a strong and growing focus on transparency, as well as an equally strong interest among managers in using technology to ease their regulatory burdens.

A number of recent whitepapers and blog articles have explored technological solutions that allow GPs and LPs to collect and manage all of the extra data needed for compliance. Now, with the release of FrontInvest 9.0, new features and expanded capabilities enable managers—for the first time—to actively monitor and verify compliance on an ongoing basis.

In this article, I’ll look at the two recent regulations that, arguably, have the greatest impact on our business as examples of how the new Compliance Module in FrontInvest 9.0 can streamline and automate the complexities of compliance.

FATCA

The U.S. Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 and went into effect this past January. FATCA will affect many fund managers, regardless of whether they have U.S. investors, foreign investors, U.S. funds or foreign funds. FATCA demands that all foreign financial institutions, including alternative investment funds, identify and disclose their U.S. account holders or face a 30% withholding penalty.

Under FATCA, fund managers will need to verify the FATCA status of their investors and their investments. Moreover, they must do so within the strict timeframes set down by the legislation. Our new FrontInvest release has customizable workflows and supporting fields and flags to streamline and automate this process. The FrontInvest Compliance Module enables managers to identify the critical data that will keep them in compliance, such as:

  • Which investors and funds have not yet been updated for FATCA compliance
  • Which investors require outreach by their relationship managers
  • What critical compliance documents are near expiration or have already expired

AIFMD

On the other side of the Atlantic, we have the Alternative Investment Fund Managers Directive (AIFMD), the most important and complex regulatory process ever faced by the alternative investment industry in Europe. It is also the first and only European legislation to date that has intentionally targeted the alternative investment business. Often referred to simply as the “Directive,” AIFMD is broad and touches every aspect of a fund manager’s business, placing a premium on investor transparency, operational due diligence and the strict separation of functions for valuations, risk management and portfolio management.

Although there is a strong focus on investor transparency under AIFMD, the day to day focus for managers is on the valuation process and risk management. The Compliance Module relieves this burden with:

  • Workflow tools to assist in:
    • Segregating roles within the management team. This is of particular importance in the areas of valuations and risk where those duties must be functionally independent from the portfolio management duties of the fund manager.
    • Enforcing defined policies and procedures that mitigate operational risk.
  • A compliance tool can help to ensure that key AIFMD requirements or internal guidelines are being tracked and followed. For example, the compliance tool can be used to track whether the capital requirements prescribed by the regulation are being met.
  • Flexible reporting tools that generate both the regulatory reports to the individual member states and the annual reports to the investors, thus meeting transparency requirements.

Compliance with international regulations like FATCA and AIFMD are no longer options for any fund manager or investor. Now, with the FrontInvest Compliance Module, the task can be made routine and free up resources for your core business: obtaining the highest returns possible for your investors.

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