As an ever-growing wave of regulation engulfs the funds industry, more and more of asset managers' time is being taken up with compliance – and the number of firms helping fund houses cope with such issues is rising. The latest to expand into Asia is UK-based Complyport, by acquiring an interest in Hong Kong compliance consultancy Corporate Support.
Under the new name Complyport Hong Kong, the business will remain under the leadership of Stuart Somer, founder of Corporate Support. It will continue to provide regulatory and compliance support to asset managers – chiefly hedge and private equity funds – and securities brokerage firms in Asia.
With a continuing flow of international asset managers into Asia, and several prominent hedge funds – such as Azentus, BFAM and Myriad – recently launching offices in Hong Kong, demand for local and international compliance expertise is increasing accordingly. Hedge funds in Hong Kong alone are estimated to hold assets of around $50 billion.
Complyport Hong Kong has 17 years' local experience in Hong Kong regulation, setting it apart from certain other new entrants into the compliance services sector in Asia. Again, unlike other providers, the firm and parent Complyport specialise only in regulatory compliance and do not offer accounting, tax, recruitment or other related services.
Complyport Hong Kong’s client base includes several large multi-jurisdiction fund managers, each typically with global assets under management exceeding $1 billion. It also supports a number of global institutional brokers, one investment bank and other financial service providers.
Somer's status as a US-registered lawyer also provides knowledge of US Securities and Exchange Commission requirements. This is now increasingly important given the requirement for, say, Hong Kong-based hedge funds with US investors to register with the SEC, and indeed due to the extra-terrestrial reach of the US's Foreign Account Tax Compliance Act (Fatca).
"As the bulk of our clients are large firms whose operations span multiple jurisdictions [typically established with offices in both New York and London]," says Somer, "they need to undertake strategic planning with regards to compliance and operational requirements and market practices involving two regulators concurrently."
Accordingly, they need advice on the implications of operating in two or more jurisdictions concurrently, particularly in light of recent regulatory amendment, he tells AsianInvestor.
For example, a Hong Kong fund manager who takes on US investors or trades in certain swaps must register with the US' SEC and Commodity Futures Trading Commission, respectively. Implementation of the Alternative Investment Fund Managers Directive (AIFMD) in Europe is another example of overseas regulatory changes having an impact on Hong Kong managers.
Indeed, market participants point to a shortage of compliance and legal talent available in Asia to deal with areas such as Fatca to tighter scrutiny of potential insider-trading activity to the constraints on marketing imposed by the AIFMD.
One general counsel at a hedge fund in Hong Kong points to tighter requirements in terms of regulatory reporting and tracking regulatory changes. And prime brokers are increasingly unable to keep up with the pace of demand for individuals with hedge fund compliance expertise.
Still, Complyport is not alone in its courting of Asian clients. Other firms to have set up in the region in the past couple of years include Singapore-based Optionality Consulting, the UK's Kinetic and US firm ACA Compliance. They add to the growing number of existing providers in the region, including ComplianceAsia, CompliancePlus and law firm Deacons.