In years gone by when a jurisdiction was chosen because, for example, of its international tax neutrality, managers may have placed limited demands on their local administrators.  Simple registered office, some company secretarial capability, simple provision of payment processing and provision of board membership may have been the order of the day.  But the demands of the modern industry have meant that local fund administration businesses have expanded their operations to meet the ever increasing demands and complexity of the commercial and regulatory landscape.

Multi-tasking

Compliance and anti-money laundering services are now a mandatory part of the package on offer from local administration businesses.  A trawl through the services typically commissioned by our clients shows that the scope of day to day functions being bought by clients is increasing and there is no reason to expect the trend to stop any time soon.  The current list of services also includes some non-traditional areas such as treasury services, which can help to significantly offset the overall administration costs of a fund, meaning that a manager is getting full administration services at what is in effect a significantly discounted rate.

The modern fund administrator is expected to be, among many other functions, part lawyer, part accountant, part regulatory and compliance expert, part commercial manager, part systems expert and part customer services function.  It is a daunting list of demands.  In response, firms including our own, find they are increasingly recruiting not just qualified accountants who have for many years formed the backbone of senior ranks of administrators, but also lawyers with relevant experience, as well as spending expanding amounts of time and money on training, internally and externally, staff at all levels.  For example as a sign of the changes, it has become a standard expectation that our Funds Services staff are professionally qualified or studying towards a professional qualification. This was not always the case before.

The Tsunami

Reviewing the situation in Japan one year after the tsunami, it is striking that the funds industry is currently facing a veritable tsunami of significant new legislation with international dimensions – from the Bribery Act which came into force last year, the imminence of the effects of FATCA and Dodd Frank, the slow burning AIFMD, not to mention the new code of corporate governance which has been in place in Guernsey since January 2012.  Indeed, one of our compliance officers returned from a recent conference and presented a comprehensive list of some fifty pieces of new legislation proposed in various parts of the world in some guise or other which will or could impact on our operations, enough to bring a cold sweat on anyone, not least a busy fund manager!

But it was considering FATCA which brought the expansion of scope of services into sharp relief.   There is a need now for firms, including our own, to devote considerable resources to analyse the impact of FATCA for their business and that of their clients.  This brings with it both a need for firms to look at, and just as important, to invest in, their systems and procedures, ensuring they will be sufficient, and ready in time, to cope with the increased reporting and data analysis requirements.  This investment will also make it easier to respond to future FATCA type legislative requirements.  We predict that the tsunami of international legislation will precipitate consolidation within the fund administration industry with those entities which have not made the investment in systems and processes to enable them to cope with the increasingly complex requirements falling by the wayside.

As Jon Kabat-Zinn so aptly said "you can't stop the waves, but you can learn to surf".  These words could have been made for the legislative tsunami we now face. However, there is another option: you can learn to surf or you can get someone else to learn to surf for you.  This is the moment where the good fund administrators will come to the fore as they surf the tsunami on behalf of clients.

Jane Pearce ([email protected]) is Group Director of Ogier Fund Services, Jersey, and Andrew Munro ( [email protected]) is Director,Ogier Fund Services, Guernsey