The Investment Company Institute’s (ICI) annual Tax and Accounting Conference in San Diego, California brought together hundreds of industry leaders to discuss how new regulation and technological innovation are changing asset management. The speakers and panels covered a range of topics including the latest from the US Securities and Exchange Commission (SEC), tax trends, and outsourcing and oversight.

Several BBHers were on panels and in attendance. Here are some highlights. 


The SEC’s implementation for form N-PORT began this summer, however it was clear from the panel and the subsequent Q&A session that form N-PORT is very much a work in progress. Form N-PORT aims to enhance transparency and modernize reporting requirements for US registered investment companies (RICs) and the first filings were completed in July 2018. Leading up to July, asset managers were mainly focused on correctly pulling together each item for the form. Now that they accomplished the first filing, asset managers are working on refining the data to align with financial statements and meet expectations from compliance and directors. The industry expects this refinement will continue over the next few months prior to the filings being submitted to the SEC.

During the SEC updates panel, the Chief Accountant for the Division of Investment Management discussed the SEC’s regulatory agenda for the upcoming year which included a focus on the new exchange traded fund (ETF) rule and some upcoming accounting changes. As was announced in June, the SEC is proposing a new set of rules that would allow ETFs that qualify to operate without exemptive relief from the SEC. However, the proposal also requires that existing ETFs relying on exemptive relief to reevaluate if they comply with the new rule.

Other upcoming accounting changes include:

  • ASU 2017-08 Premium Amortization change effective for fiscal years and interim periods beginning after December 15, 2018
  • Disclosure Framework Project
  • Fair Value Measurement disclosure refinement
  • Disclosure Update and Simplification final rule

The Disclosure Update and Simplification initiative streamlined SEC guidance with that of the Financial Accounting Standards Board (FASB.) Essentially, this will remove duplicative disclosure within financial statements, including a simplification of distribution disclosures on the statement of changes. This change takes effect in November 2018.

Tax Trends

RICs are facing challenges proving tax treaty entitlement in several markets of investment. RICs are required to look through to their investors and to identify certain information, such as the investors’ residence. However, proof of residence and beneficial ownership are obstacles in markets such as Switzerland, South Korea, and Austria. In most cases, funds are not able to readily produce such information, especially with respect to indirect investors in the fund. In several domiciles, identifying information is often protected by privacy regulations. ICI and the Association of Global Custodians (AGC) are negotiating with the relevant tax authorities in hopes of simplifying the refund application process.

We’re also seeing that funds are actively pursuing EU tax claims based on Article 63 of the Treaty on the Functioning of the European Union (TFEU). Claims are based on perceived discriminatory taxation of nonresident funds as compared to local funds. Determination of whether to file a tax claim is based on several factors, including likelihood of success, administrative hurdles, and a cost benefit analysis. Reportedly, significant refunds are being paid out by Finland, Poland, and Sweden. If refunded, funds enter into closing agreement with the IRS to compensate for previously claimed tax benefits by taxable shareholder. ICI is advocating for a standard industry closing agreement.

Outsourcing and Oversight

Outsourcing and oversight continue to be key topics of interest within the asset management community. Currently, of the 25 largest US asset managers, 80% are outsourcing back office and 20% outsource middle office functions.1 When it comes to outsourcing, discussions at ICI centered around three key areas for consideration: customization, expectations versus execution, and technology.

Panelists agreed asset managers should not try to recreate their current operating model within their new provider’s platform. When it comes to outsourcing, managers should look for an asset servicer who can customize where necessary but bring their own expertise to the table. When engaging in the onboarding and customization process, managers should keep in mind why they chose that service provider in the first place and take full advantage of their expertise.

Expectations and execution, both initial and ongoing, according to a panel, are key to an outsourcing and oversight relationship. Clearly defined service level guidelines can assist in the execution of the outsource as well as provide ongoing alignment around responsibilities and deliverables. Some providers are even instituting mid-contract reviews as a check point to review terms, key performance indicators, as well as specific service levels. Managers and servicers should pay extra attention to data, as that’s likely the area where gaps appear.

Finally, no conference would be complete in 2018 without lengthy discussions about technology and how it’s transforming the industry. Asset managers should be asking their chosen providers about their technology strategy. Are they engaged in emerging technology, such as APIs and AI? Is their technology funding appropriate to keep or give them a competitive advantage? Managers should be sure to partner with a provider whose technology and strategy can support their own firm’s growth objectives.

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1 Accenture Research