Cross-Border Investment Compliance: Navigate Global Regulations

Multi-jurisdictional compliance is at the top of the list for global financial institutions operating cross-border, as it is a critical factor for business continuity, building trust with investors and avoiding penalties. 

At the same time, the constantly evolving legal landscape, regulatory uncertainty and diversity of applicable rules across jurisdictions create new challenges, which are multiplied by private funds' scale of operations and the number of portfolio entities. 

This report outlines key challenges faced by global private equity and venture capital firms and offers a practical roadmap to ensure global entity governance and cross-border compliance.

Multi-Jurisdictional Compliance Challenges in Global Investing

Global PE and VC firms face multiple challenges in ensuring cross-border compliance, accompanied by steep sanctions for violations. 

Regulatory Divergence 

Each jurisdiction comes with its own set of rules and requirements affecting multiple aspects of investment businesses. Private equity and venture capital firms operating across jurisdictions need to adhere to diverse and complex regulatory requirements and commit significant resources to ensure compliance. 

Rapidly evolving regulations 

The modern regulatory landscape is constantly evolving with different jurisdictions initiating their unique sets of rules that can soon be echoed by other countries. 

A new law passed in one jurisdiction often prompts similar regulatory action in other countries, such as the EU AI Act with similar enactments now actively pursued by legislators in the US. 

Private funds need to constantly monitor new regulatory initiatives, take preemptive action, and implement global entity governance to ensure multi-jurisdictional compliance.

Data privacy and security

Financial institutions implementing cross-border investing face significant compliance challenges related to the protection of confidential and sensitive data in different jurisdictions. 

For example, PE and VC in the United States implementing intentional and systematic marketing to EU-based investors have to comply with stringent requirements of the General Data Protection Regulation (GDPR) for collecting, processing and disclosing personal data of EU residents.

Implementing AML, KYC and CFT policies 

When private equity firms expand their portfolios, they need to implement extensive due diligence on their investors and portfolio companies to avoid violating sanctions regimes and doing business with bad actors. In addition, certain jurisdictions may explicitly require investment advisors to run such due diligence to ensure compliance. 

For example, a new proposal by the U.S. Financial Crimes Enforcement Network (FinCEN) mandates certain investment advisers implement anti-money laundering (AML) and countering the financing of terrorism (CFT) programs, report suspicious activities and conduct record-keeping. 

Consequence of Non-Compliance

In most jurisdictions, regulators set strict penalties for non-compliance. For example, a violation of the requirements of the GDPR for collecting, processing or disclosing personal data of EU residents can result in fines of up to 4% of worldwide turnover or up to EUR 30 million. 

Meanwhile, the fines for violating regulations of the Office of Foreign Assets Control (OFAC) can lead to penalties exceeding several million dollars as well as prison sentences. 

Other negative consequences of non-compliance, irrespective of jurisdiction, could include reputational damage, business disruption, potential loss of licenses and certifications, legal disputes and costs of remediation and audit.

The cost of non-compliance can be devastating. Protect your firm's reputation and financial stability by investing in a comprehensive compliance solution. Start your journey to regulatory excellence now.

Implementing Global Entity Governance for Cross-Border Compliance

Private equity and venture capital firms, as well as other corporate investors operating across jurisdictions, need global entity governance to stay ahead of the regulatory changes and ensure multi-jurisdictional compliance. 

Having a robust governance framework is essential to navigate the global regulatory landscape, mitigate risks and avoid penalties.

The fundamental elements of such a global entity governance and compliance programs include:

1. Maintaining a support network of in-house and industry experts to implement continuous monitoring of regulatory developments and foster early adoption of regulatory trends across borders.
2. Continuous risk assessments to identify potential multi-jurisdictional compliance issues and take preventive action.
3. Automating your processes by streamlining compliance efforts across the organization. This will help you to ensure accurate record-keeping and timely filings.
4. Running deeper due diligence above basic level checks on all investors and portfolio companies and implementing AML/CFT practices even if not legally required to run such programs for the moment to avoid doing business with bad actors.
5. Implementing robust internal controls for monitoring, auditing and reporting incidents that may occur in various jurisdictions.

Overcome Multi-Jurisdictional Compliance Hurdles

When implementing global entity governance for multi-jurisdictional compliance, PE and VC firms and other investment companies can benefit by using modern technology to bridge the gap in their cross-border compliance programs. 

The compliance teams need a comprehensive toolset to automate monitoring, reporting and risk management, ensure data privacy and security at all times, conduct record-keeping and implement AML/CFT programs.

Modern technology solutions like Athennian provide private funds with due diligence automation tools, regulatory filing software and the benefits of Single Source of Truth (SSoT) for Governance, Risk and Compliance (GRC). 

For more information on how Athennian can help ensure cross-border compliance, please do not hesitate to contact our team for a free consultation or to schedule a free demo.