By their very nature, retirement plans are viewed and governed differently. There are sanctions on dealing with retirement plan information which only a Regulator can decide on. There are so many organizations with powers of search and seizure these days that might otherwise demand access to sensitive information. Preventing this is important because retirement plans are proprietary. Moreover, the US Treasury has formally determined that pensions carry a low risk of tax evasion and they are therefore exempt from FATCA reporting.
The Alternative Investment Fund Managers Directive (AIFMD)
Similarly, regulations have changed in Europe. As of July 2014, it is illegal for fund managers to market in Europe unless they are compliant with the AIFMD. What makes this regulation so weighty is that 25% of U.S. capital originates in Europe and most U.S. managers are unaware that their prospective investors may be illegal.
This EU directive is far reaching and effectively states that unless a fund or collective investment scheme is registered somewhere in the EU, it is not compliant. Being noncompliant can have severe consequences. The Managing Director of a major hedge fund administrator recently outlined an example: ‘Let’s say that you are marketing to a German hedge fund. The German fund puts $100 million into your fund. The performance of your fund goes down 25%. That investor’s holding is now worth $75 million. They can go to a German regulation court and claim that you illegally marketed
your services to them and guess how much they are entitled to? They are entitled to $100 million because this is the amount that they shouldn’t have been allowed to invest.’ Furthermore, common logic suggests that when you are non-compliant in the EU, it is highly likely that you are not compliant at home either.
There was a time 40 years ago when there was exchange control throughout Europe. The U.S. didn’t have exchange control, but when a U.S.-based investor wanted to invest in Europe he would have to navigate myriad rules and regulations. We have now gone full circle, with the exception that this is no longer termed exchange control – it is now called securities regulation!