Investment Advisers and Funds New Treasury Report Form for Foreign Claims and Liabilities

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1 February 2014 Practice Groups: Investment Management Hedge Funds and Venture Funds Investment Advisers and Funds New Treasury Report Form for Foreign Claims and Liabilities By Clifford J. Alexander and Beth Clark The Department of the Treasury recently amended Treasury International Capital ( TIC ) B forms to explicitly require reporting of cross-border claims on, and liabilities to, foreign residents by savings and loan holding companies and other financial institutions, which includes investment advisers and managers, mutual funds, money market funds, pension funds, private equity funds, real estate investment trusts, credit card issuers, hedge funds, trusts, financial companies, mortgage companies, futures commission merchants and insurance companies. Previously, TIC B reporters were limited to depository institutions located in the United States, bank holding companies, financial holding companies and securities broker-dealers. Investment advisers historically reported on TIC C forms, but are now subject to TIC B. TIC B forms are designed to collect information from U.S.-resident reporters and their customers of claims on, and liabilities to, foreign residents and vice versa. The information gathered from the forms is used, on an aggregate basis, to report on U.S. cross-border financials positions, U.S. balances of payments and international statistics. Which particular form or forms must be completed depends on whether (1) cross-border claims or liabilities are being reported; (2) cross-border claims or liabilities are being reported with respect to the U.S. financial institution or its customers; or (3) cross-border claims or liabilities are denominated in U.S. Dollars or a foreign currency, as set forth below, along with other relevant information for each form. For a U.S. financial institution that is an investment adviser, the investment vehicles that the investment adviser manages are considered the investment adviser s customers. A U.S. investment adviser should consolidate the reportable claims and liabilities (as further described below) of the U.S. and foreign investment vehicles it manages, if the investment vehicles assets are not held by a U.S. custodian. TIC B Report Forms The table below describes the six types of monthly and quarterly TIC B forms, the reporting frequency and the reporting thresholds with respect to each form. There are two types of thresholds: one is based on the aggregate dollar value of all cross-border claims or liabilities; and the other is based on total claims or liabilities with respect to one. The appropriate form must be filed if reportable claims or liabilities meet or exceed that form s threshold. With respect to forms where there are two thresholds, the form must be filed if either threshold is met.

2 FORM REPORT FREQUENCY THRESHOLD BC Report of U.S. Dollar Claims of Financial Institutions on Foreign Residents Monthly BL-1 BL-2 BQ-1 BQ-2 BQ-3 Report of U.S. Dollar Liabilities of Financial Institutions to Foreign Residents Report of Customers U.S. Dollar Liabilities to Foreign Residents Report of Customers U.S. Dollar Claims on Foreign Residents Part 1: Report of Foreign Currency Liabilities and Claims of Financial Institutions and of their Domestic Customers Foreign Currency Claims with Foreign Residents Part 2: Report of Customers Foreign Currency Liabilities to Foreign Residents Report of Maturities of Selected Liabilities and Claims of Financial Institutions with Foreign Residents Reportable Claims and Liabilities Monthly Monthly Part 1: $50 million in aggregate or $25 million individual Part 2: $50 million in aggregate no individual limit $ 4 billion no individual limit For purposes of determining whether a financial institution meets the applicable threshold, reportable cross-border claims of U.S.-resident financial institutions on foreign residents include: deposit balances due from banks of any maturity (including non-negotiable CDs); negotiable certificates of deposit of any maturity; brokerage balances; loans and loan participations of any maturity; resale agreements and similar financing agreements; short-term negotiable and non-negotiable securities (original maturity of one year or less); 2

3 money market instruments (e.g., commercial paper, bankers acceptances) with an original maturity of one year or less; accrued interest receivables (including for short-term and long-term securities) and account payables; and reinsurance recoverables; but exclude: long-term securities (no contractual maturity or an original maturity of over one year); credit commitments and contingent liabilities; derivatives, including forwards, futures, options, swaps and warrants; and spot foreign exchange contracts. Similarly, for purposes of determining whether a financial institution meets the applicable threshold, reportable cross-border liabilities of U.S.-resident financial institutions to foreign residents include: non-negotiable deposits of any maturity, including non-negotiable certificates of deposit; brokerage balances; overdrawn deposit accounts; loans, including margin loans payable, of any maturity excluding drawn syndicated loans where there is a U.S. administrative agent; short-term non-negotiable securities (an original maturity of one year or less); repurchase agreements and similar financing agreements; accrued interest payables (for short-term and long-term securities) and account payables; insurance technical reserves; and prepaid insurance premiums; but exclude: foreign residents deposits or brokerage balances swept into money market or other mutual funds; securities lending agreements in which one security is lent in return for another; loans from a foreign resident that are serviced by a U.S. resident; negotiable certificates of deposit; and negotiable short-term securities. Investment Advisers When determining whether a U.S. financial institution, such as an investment adviser, meets the reporting thresholds and, therefore, has a TIC B filing obligation on behalf of itself and/or 3

4 its investment vehicles, it is important to consider not only investments and loans themselves, but claims on, or liabilities to, third-party service providers. For example, a U.S. investment adviser may have multiple U.S. investment vehicles with brokerage balances at a variety of UK prime brokers, all of which must be aggregated to determine whether the single limit for Form BL-2 has been exceeded. An investment adviser is not required to count claims or liabilities of an investment vehicle that it manages if such claims or liabilities are being reported by another TIC B filer, such as the investment vehicle s U.S. custodian. Registered Investment Companies An investment adviser to a registered investment company (a RIC ) typically will not be subject to a reporting requirement with respect to the RICs cross-border claims and liabilities because the RIC s assets are held in the custody of U.S. banks. A RIC s cross-border claims and liabilities generally will be reported by its U.S. bank. However, if a RIC has unpaid fees owed to one or more unaffiliated foreign subadvisers, a filing might be required. Additionally, some RICs may self-custody certain claims or obligations, such as loan participations, that its U.S. bank would not report. In those cases, a report may be required by the RIC s investment adviser. Determining Reporting Obligations Investment advisers should conduct an examination of their cross-border relationships and transactions to determine whether they have an obligation to file TIC B reports covering their own claims or liabilities as well as those of their customers. This should include a list by of the following: (1) foreign investments not held by a U.S. custodian; (2) foreign subadvisers and other service providers; and (3) anticipated ranges of claims and liabilities associated with the each cross-border relationship and holding. Due Dates Monthly reports (TIC BC, BL-1 and BL-2) are due the 15th calendar day following the last day of the month, and quarterly reports (TIC BQ-1, BQ-2 and BQ-3) are due the 20th calendar day following the last day of March, June, September and December. If the due date of a report falls on a weekend or holiday, the due date is the following business day. The amendments went into effect with respect to reports due starting in January Consequently, the first monthly reports were to be filed as of January 15, and the first quarterly reports were to be filed as of January 20. The Federal Reserve Bank of New York, who administers the collection and processing of TIC filings, will consider an extension of the filing deadline on a case-by-case basis. For more information about the TIC B forms and reporting requirements, please visit the following link: 4

5 Authors: Clifford J. Alexander Beth Clark Anchorage Austin Beijing Berlin Boston Brisbane Brussels Charleston Charlotte Chicago Dallas Doha Dubai Fort Worth Frankfurt Harrisburg Hong Kong Houston London Los Angeles Melbourne Miami Milan Moscow Newark New York Orange County Palo Alto Paris Perth Pittsburgh Portland Raleigh Research Triangle Park San Diego San Francisco São Paulo Seattle Seoul Shanghai Singapore Spokane Sydney Taipei Tokyo Warsaw Washington, D.C. Wilmington K&L Gates practices out of 48 fully integrated offices located in the United States, Asia, Australia, Europe, the Middle East and South America and represents leading global corporations, growth and middle-market companies, capital markets participants and entrepreneurs in every major industry group as well as public sector entities, educational institutions, philanthropic organizations and individuals. For more information about K&L Gates or its locations, practices and registrations, visit This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer K&L Gates LLP. All Rights Reserved. 5