Private equity CFOs say that the Foreign Account Tax Compliance Act will have the highest expected impact on their business, according to a recent survey conducted by Ernst & Young in collaboration with PEI. While they consider regulations to be manageable, a large majority expect it to increase internal costs or force them to pass costs on to their funds.
CFOs face ‘extraordinary regulatory change’
“The vast majority of CFOs continue to cope with the fallout from extraordinary regulatory change,” says the EY survey. “Knowing the wave of regulatory changes will persist into the near future, it is safe to say that CFOs who can lower costs will have a distinct competitive advantage.”
The consensus is striking: 96% of CFOs said that FATCA will have a medium or high impact on their business, followed by 92% concerned about the tax treatment of carried interest and 80% concerned about the Alternative Investment Fund Managers Directive (AIFMD) that went into effect earlier this year. The survey results are partially colored by the CFOs’ mandate, but it’s clear that no one is happy about having to spend so much time and effort dealing with regulations that continue to change.
North American CFOs were more worried about AIFMD than their European and Asian peers because they have not yet had to deal with the new regulations (it won’t hit them until July of this year). “North American firms have not yet assessed the costs and implications of transposition timing, transitional provisions and private placement marketing regimes,” says the survey.
“With any of the regulatory issues, it just takes more resources — resources that do not add value,” said one of the survey respondents.
CFOs are concerned, but not panicking
That doesn’t mean that CFOs are panicking, they are confident that they have compliance under control with only 16% saying that the process has been complex and labor intensive, but 83% expect their costs to increase and 15% are expecting lower returns because of the changes.
“While there is no consensus as to whether increasing costs should belong to the fund or the firm, there is consensus that enhanced regulatory requirements directly impact overall expenses,” says the report.