IFG acquire Moore Group

IFG Trust and Corporate Group (“IFG”), the trust company and fund administrator, has agreed to acquire Jersey-based fund management business Moore Group for an undisclosed sum, subject to regulatory approval. 

The acquisition is the first for IFG since AnaCap Financial Partners backed its £70 million MBO from the wider IFG Group in the summer.

IFG was established in 1975 and today provides fiduciary services, fund administration and services to the leisure industry through offices in the Isle of Man, Jersey, Cyprus, Switzerland and the Republic of Ireland.

Moore is a specialist fund administration business founded in Jersey by Ian Moore in 1996 and which now administers assets in excess of $17bn.  It has had a long-standing focus on Asian clients, with offices in Tokyo and Bermuda, and IFG believes that the acquisition will strengthen the combined group’s position in Asia.

Ian Moore will continue to work with the group and will become its executive chairman.

IFG is currently undergoing a rebrand to establish itself as corporate service provider independent of the IFG name, and is due to unveil its new corporate identity shortly.  For the time being at least, the Moore brand will exist as a subset of the new brand, retaining its own name and trademark.

Brooks Macdonald to acquire Spearpoint for £34 million

Channel Islands investment management boutique Spearpoint is to be acquired by Brooks Macdonald Group plc, an AIM listed wealth management group, for approximately £34m.

Spearpoint was established in 2007 by Jon Davey and has grown to 54 staff across Jersey and Guernsey. It offers fund management, retirement services, and execution only stock-broking.

Spearpoint has assets under management of approximately £1.1bn and the new combined group will have funds under management of approximately £4.5bn.

As Brooks Macdonald had no Channel Islands presence prior to the acquisition, and as the plan is to expand the business, it is believed that all of the existing staff will keep their jobs.  It is also understood that the key senior executives will all remain with the business.

Santander reported to be pondering sale of its Jersey private banking business

Santander, the huge Spanish banking group, is reported to be looking into the possibility of selling its Jersey-based private banking operation, believed to comprise tens of thousands of customers and around £4 billion in deposits.

The Jersey business was rebranded in 2010 as Santander Private Banking from Abbey International (which it acquired in 2004).

The fact that Santander are looking at the options is by no means evidence that it has already taken a decision to sell – it conducted a similar review of its Alliance & Leicester International business on the Isle of Man earlier this year, and has retained ownership of that business.

The sale of a private bank in Jersey is not necessarily straight-forward because of the policy of the Island’s regulator only to grant banking licences to banks amongst the world’s largest 500.  This limits the pool of potential buyers quite considerably, although there are still numerous banks operating in the private client field in the Island who could view this as an opportunity to add some significant critical mass.  Royal Bank of Canada, Kleinwort Benson, UBS and Investec are amongst a number all of whom have significant existing operations in the Island.

Santander is understood to have appointed London based corporate finance advisory firm Gleacher Shacklock, to assist in the process.

FATCA Model 2 Agreement published

The United States Treasury has published a second model agreement, developed in conjunction with Japan and Switzerland, designed to facilitate the implementation of FATCA.

In February this year, the US Treasury announced the first model agreement – negotiated with France, Germany, Italy, Spain and the UK - to facilitate a government-to-government mechanism for implementing FATCA.   Under the first model agreement, FFIs would report the necessary information regarding US persons to their respective governments rather than directly to the IRS.   The agreement also envisages tax information sharing between the governments on a reciprocal basis, based on existing bilateral tax treaties.  This model agreement is expected to be available only to jurisdictions who have signed a Tax Information Exchange Agreement with the US, or who have a double tax treaty in place.

The second form of model agreement takes a different approach.  It does not obviate the need for direct reporting by FFIs to the IRS, but it does deal with some perceived legal impediments which would otherwise prevent FFIs from passing the information across. In essence, governments using the second model agreement would issue a directive to their resident FFIs directing them to register with the IRS by January 1, 2014, to comply with all of the requirements of an FFI agreement, and instructing them to request the consent of pre-existing account holders to the reporting. 

There are likely to be some situations where existing US account holders refuse to consent to the reporting of their information.  The model agreement deals with this by providing that in those situations the FFI will provide aggregated information on all such accounts to its own government’s tax authority, which will then be authorized to transmit the data to the IRS.  

New accounts for US persons would only be permitted to be opened if the FFI first obtains consent from each account holder for the FFI to comply with the requirements of an FFI agreement. 

The model two agreement is a pragmatic solution to situations where a country’s laws would prevent the passing of data to a foreign tax authority without the explicit consent of the underlying client, and as such has been welcomed by American Citizens Abroad (ACA), a Geneva-based organisation which represents American expatriates.  However, as it does not obviate the need for the FFI to have a direct reporting relationship with the IRS, it is likely to be viewed in many quarters as less attractive than the first model agreement.

Some offshore jurisdictions, including the Channel Islands, have already announced their intention to put IGAs in place following model one.  The Cayman Islands, by contrast, decided not to commit themselves to any particular course of events until the second model agreement had been published.  It can therefore be expected to make an announcement as to its preferred course of action shortly.

The IRS is currently understood to be in dialogue with around 50 countries in relation to arrangements for FATCA compliance.

FATCA Survey Results - opinions deeply divided on impact on trust company profits

It seems that trust companies are starting to get to grips with what FATCA will mean for them.  In October I ran a survey of trust companies to test their preparedness for the new regulations.  The results have now been collated and seem to show that plans are further along than some might have feared, but that there is a real lack of clarity regarding whether FATCA will have a positive or negative financial impact on the trust company industry.

7% of respondents had little or no idea how FATCA would affect their business and a further 7 % had only a basic understanding of what FATCA was about and did not yet have a clear idea of how it would impact the business.  However, a creditable 86% had at least a fairly detailed understanding of the regulations and their impact, with 29% believing they had a thorough understanding and were already well into their implementation preparation.  One respondent commented that they had a dedicated programme office to handle the regulations, had already analysed the entire client base and were well into the process of gathering any missing data items - a commendably thorough approach.

There seems to be some doubt as to whether time costs will be billable for FATCA work - 39% of respondents thought that revenue would increase because of FATCA, but the majority (62%) felt that income would be unaffected.  None of the respondents felt that revenues would actually decline, which seems to indicate that practitioners do not feel that many clients will close their structures as a result of the new regulations.  

The picture with regard to profits shows more of a divergence of opinion - 39% felt that profits would decline as a consequence of FATCA (citing amongst other things the cost of implementing the necessary controls), 39% felt that they would increase as the additional time costs would be recovered, and 23% felt that they would be unaffected.  It is clear that there is a great deal of uncertainty regarding what proportion of the costs of FATCA compliance can be passed on to clients, but it is a matter of crucial importance for fiduciary businesses.  My own view is that in the first year or two profits are likely to decline, because I do not feel that all of the costs of adjusting IT reporting procedures and systems can or will be passed on to client, and nor do I expect non-US clients to pay for the privilege of being able to prove that they are not caught by the regulations, without a great deal of resistance.  However, once new systems and procedures are in place for the efficient gathering of data and reporting to the relevant authorities in the future, then I would expect that these ongoing costs could reasonably be expected to be passed on to the US clients maintained by each trust company.  

FATCA will require trust companies to gather data on the 6 indiciae of a US person.  43% of respondent trust companies believe that they already have the data they need to test the 6 indiciae for each client, but that the data was not stored electronically, implying that there will be a big manual task involved in implementation.  Just under one third of respondents believed that they had all the required information and it is stored already on an IT system.  Perhaps surprisingly, only 29% of respondents believed that they were missing necessary information.  In my experience, I have never come across a trust company which recorded the data required to consider all 6 elements of the US person test prior to the introduction of the FATCA regulations, which seems to suggest that either trust companies still do not understand the depth of information that they need, or that there has been a very large amount of data gathering in the last year.

There was complete unanimity that the FATCA rules would not prevent trust companies from representing US clients.  100% of respondents said that they do currently have US persons amongst their client base, and none proposed to change this view.  This is in contrast to some of the larger banks and investment managers (particularly those based in Asia), who have announced an intention to cease to service US persons as clients.

And in a final bit of good news for the consultants who work in the field, 57% of trust companies felt that they would need to pay for external help in implementing FATCA, with the remainder believing that they could manage with internal resources and knowledge sharing within their industry bodies.

The survey does seem to suggest that FATCA is now getting the attention of very senior individuals within the trust company sector.  In 55% of respondent companies the CEO/Managing Director was taking direct responsibility for the new regulatory project, with the Head of Compliance taking control in 36% of cases, and only 9% of trust companies having delegated the task to business unit directors.

After a slow start it seems that trust companies are now making real efforts to get to grips with the impacts of FATCA, and to prepare themselves for implementation.  The task is not made easier by the fact that certain key grey areas remain, and that the US is currently negotiating IGAs with up to 50 different territories.  Until this process is complete, it is difficult for companies to be sure that they have done everything that needs to be done.

Many thanks to all of those trust companies who participated in the survey.

Guernsey proposes new 10% tax rate for fiduciary businesses

There has been speculation for some time about whether Guernsey would extend its 10% tax rate to fiduciary businesses, to bring it in line with current practice in neighbouring Jersey and to help fill the fiscal hole brought about by the abolition of the deemed distribution provisions under pressure from the EU earlier this year.

Today has seen confirmation that this will be debated by the States on 12 December 2012 as part of the budget proposals.

Up until now, under the Island’s zero ten tax regime, fiduciary businesses have been zero rated for tax.  The aim of the new budget proposals is to raise an additional £12 million from the financial sector.

As yet details are sketchy, and it is not entirely clear exactly who will be caught into the new 10% tax band (for example fund administrators), but it can be assumed that traditional trust companies certainly will be.

The new tax will be applied to fiduciary businesses, but not to any underling client entities administered by them, unless they also meet the criteria for fiduciary business themselves.

Axiom Legal Financing Fund sacks Tangerine Investment Management

The directors of Cayman based Axiom Legal Financing Fund, the embattled fund at the centre of a storm of serious fraud allegations, are reported to have sacked the current investment managers, Tangerine Investment Management.

Last month all redemptions in the fund were suspended following a flood of redemption requests in the wake of allegations made by OffshoreAlert about Tangerine’s boss, Tim Schools, and management of the fund.   The seriousness of the allegations made by OffshoreAlert has escalated over the past couple of months, and now includes claims that the fund appears to be a Ponzi scheme and that investors have been defrauded. 

Mr Schools, Tangerine and the Fund have all strenuously denied any wrongdoing, and Mr Schools has indicated that he will be taking defamation proceedings against OffshoreAlert.  Despite this, Mr Schools stepped down as head of Tangerine following publication of the allegations.  He is separately under investigation by the Solicitors Regulation Authority in England in relation to alleged misconduct at ATM Solicitors, an English solicitors firm he sold last year.  His case has been referred to the Solicitors Disciplinary Tribunal, where it will be heard in due course. The allegations are as yet unproven and again Mr Schools strongly denies any wrongdoing.

KPMG Cayman was appointed by Axiom to carry out an independent review of operations and it was said that Tangerine was “actively cooperating with that review”.  The output of that review was expected by today at the latest, but whilst it is understood that the directors have seen a draft of the report, the final version will be delayed as KPMG have now been asked to provide interim advisory services in the light of Tangerine’s removal and need to focus on this as their priority.  KPMG’s role will be to preserve the fund’s assets, to interact with a panel of law firms to determine their short-term funding requirements for the progression of cases and to gather proposals for the ongoing management of the fund.  The delay of the publication of the report will doubtless be a disappointment to the many investors in the £100 million fund, who are desperate to know whether there investment is safe and whether there is any truth in the allegations.

In a letter dated 14 November, the directors said that an Extraordinary General Meeting will be held in December at which the directors, will present proposals regarding the continued management of the fund.

There is no explanation in the letter as to why Tangerine’s appointment has been terminated.  It is therefore not clear whether the action is because KPMG have found prima facie evidence of wrongdoing, or simply that the step was necessary to restore credibility in the fund’s management in light of the allegations.