Declaration of US ownership on Tic SHC form due by March

The U.S. Department of the Treasury (Treasury) currently collects data from U.S. institutions as part of its mandatory five-year benchmark survey of ownership of foreign securities by U.S. residents. This survey must be completed on Form SHC by all U.S. Custodians and End Investors (as described below) who exceed the applicable Foreign Reportable Securities Reporting Threshold (as described below). The survey must be filed with the Federal Reserve Bank of New York electronically or by email no later than March 4, 2022.

This alert will provide information about who is required to complete the SHC form, as well as a high-level summary of the applicable reporting requirements.

WHO IS OBLIGED TO REPORT?

Form SHC must be filed by U.S. persons or organizations (including U.S. subsidiaries of foreign entities legally incorporated or licensed in the United States) whose reportable foreign securities holdings equal or exceed US$200 million as of December 31, 2021. Entities required to report includes:

  • U.S. resident custodians responsible for the safekeeping of US$200 million or more in reportable foreign securities;
  • U.S. resident end investors holding or managing US$200 million or more in reportable foreign securities; and
  • any other entity specifically notified by letter from the Federal Reserve Bank of New York.

For purposes of Form SHC, a US resident end investor is any US resident organization that invests in foreign securities on its own behalf or on behalf of others. The following organizations fall within the scope of the survey:

  • financial and non-financial organizations (including intermediate holding companies);
  • private and public pension fund managers;
  • managers/sponsors of registered funds, exchange-traded index funds, mutual fund trusts, hedge funds, limited partnerships, trusts, private equity funds, venture capital funds and others private investment vehicles;
  • insurance companies;
  • foundations;
  • university endowments;
  • trusts and estates; and
  • family offices.

In addition, Form SHC reporting must be made on a consolidated basis, i.e., a single Form SHC reflecting all reportable securities owned or managed by all branches, offices and majority-owned subsidiaries of an organization residing in the United States must be filed by the organization’s highest parent entity residing in the United States. The form also requires consolidation of own and customer assets by asset managers. For these entities, a consolidated report on Form SHC should include all reportable securities held by the organization on a sole basis as well as reportable securities held by U.S. resident funds and accounts sponsored or managed by the manager. The report may exclude reportable securities held by non-US subsidiaries or managed for non-US accounts.

SHC FORM STRUCTURE

The SHC form is made up of three separate annexes:

  • Schedule 1 must be completed by all reporting agencies. Schedule 1 requests basic identifying information for the reporting organization as well as summary information regarding the data reported in Schedules 2 and 3 (if applicable).
  • Annex 2 requires detailed information on reportable foreign securities held by the reporting organization.

U.S. custodians who hold, in aggregate across all accounts, more than US$200 million in reportable foreign securities must complete Schedule 2 with respect to all reportable securities in their custody (or in the custody of their foreign sub-custody).

End investors must complete Schedule 2 if they hold or manage US$200 million or more in reportable foreign securities with non-US custodians or in self-custody. However, end investors are not required to report securities held through a US custodian on Schedule 2. Thus, an end investor who owns and manages less than US$200 million held outside a U.S. custodian has no schedule 2 reporting requirements.

An organization that holds Schedule 2 reportable foreign securities must complete a separate Schedule 2 for each of these securities.

  • Appendix 3 requests information regarding the US resident custodian(s) used by the custodial organization to hold reportable foreign securities. A filing organization must file a separate Schedule 3 for each US custodian holding US$200 million or more in reportable foreign securities on behalf of the filing organization.

The fair value of securities at the close of business on December 31, 2021 should be used to determine whether an organization owns or manages US$200 million of reportable securities.

WHAT ARE THE TITLES TO DECLARE

Reportable securities generally include all securities (including equities, long-term and short-term debt and certain money market fund instruments) issued by entities established under the laws of another country. than the United States, and all securities issued by international organizations. Neither the country in which the securities are traded or issued nor the currency in which the securities are denominated are relevant in determining whether the particular security is reportable. In this regard, the security-specific instructions in the SHC form can be quite nuanced and require careful consideration. For example, certificates of deposit held by a US person that provide exposure to foreign securities are reportable, but foreign securities held by a US custodian to back the certificates of deposit are not reportable.

Here are some other examples of non-declarable titles:

  • any US title, including:
    • securities issued by organizations resident in the United States;
    • securities issued by US-resident subsidiaries of foreign-resident organizations and US-resident offices of foreign banks or foreign brokers;
    • securities issued by US resident entities under Section 144A of the Securities Act of 1933;
    • ownership of shares of US resident funds; and
    • stripped securities issued by a financial institution resident in the United States;
  • direct investments (that is, generally, where the end investor resident in the United States owns 10% or more of the voting securities of a foreign issuer);
  • derivatives;
  • loans and loan participation certificates;
  • Bank deposits; Where
  • foreign securities temporarily acquired under reverse repurchase, borrowing or lending agreements.

PURPOSE OF THE SHC FORM

The Treasury International Capital (TIC) reporting system is a set of periodic statistical reports prepared by the Treasury to document the flow of money into and out of the United States through purchases and sales of securities and other financial instruments. Reports generated from this data are primarily used by the Treasury for: (i) calculating the US balance of payments; (ii) formulation of international financial policy; and (iii) monitoring of developments in international markets. The SHC form is one of a series of TIC forms used by the Treasury to collect information on positions held by U.S. persons in foreign securities for the TIC reporting system.

PENALTY FOR NON-COMPLIANCE

Notwithstanding that the SHC form is designed to facilitate the collection of information for investigative purposes, filing is mandatory for designated organizations and failure to provide timely and accurate data may result in penalties under the law. applies. As a result, Form SHC must be filed by the reporting deadline of March 4, 2022.

DATA CONFIDENTIALITY

The information collected on the SHC form will be made available to the general public only at an aggregated level; reports from individual filing organizations are treated confidentially. For more information :

The Federal Register notice announcing the investigation can be viewed here. The SHC form and associated instructions are available on the Treasury Department website here.

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