CTA Checklist for CLO Managers

Under the CTA rules, a number of exemption routes are available, particularly for certain types of companies, including public companies, banks and pooled investment vehicles. Unfortunately, the vast majority of CLO co-issuers do not meet the requirements of the pooled investment vehicles exemption. Despite the absence of certainty,¹ most CLO managers that are seeking an exemption are instead relying upon that provided to a subsidiary of an RIA. From our vantage point as a provider of fiduciary services to a substantial segment of offshore CLO issuers and their US co-issuers, approximately 20% of US CLO managers are following an exemption route. By contrast the prevailing majority and approximately 80% of CLO managers are electing to file BOI Reports in respect of each of the deemed reportable entities and expect to do so on or before the regulatory reporting deadline of 1 January 2025 (the “deadline”).

As the deadline for compliance becomes imminent, and with increasing clarity on the rules, some CLO managers previously intending to seek an exemption have reversed course and have since decided to file a BOI Report. While this group is broad, it does appear that a number of managers in this subset have made the decision based on the action of their peers, i.e., following the prevailing market view and commentary provided from a number of leading- industry organisations.

A shared view of managers who have taken the fail-safe approach to file the BOI report is the rationale that such structures were initially designed to stand independently of the CLO manager. Managers with this view take the position that any alternate course would result in the co-issuer entity being re-classified as a downstream subsidiary of the CLO manager. Following that course of action and in order to qualify for an “exemption” would equally require analysis and legal advice. The associated expense of this reclassification exercise is likely more than the cost of “reporting” in the first instance. It is precisely such cost-benefit analysis which is widely shared amongst the prevailing market, and which has steered those managers who have taken the more fail-safe approach.

Another tipping point in favour of BOI reporting concerns offshore SPVs with US-domiciled co-issuers. The guidance within the CTA rules to assess substantial control is significantly broad and may be extended to include the directors of the offshore issuer. In these structures, determining who has direct control is not always straightforward. Similarly, identifying the individuals who exert indirect control or ownership can also be challenging.

A number of operational / logistical challenges will need immediate consideration, notably the need for a unique identifier for co-issuer entities such as EINs and/or FinCEN Identifiers for individuals exerting control of the co-issuer. Timeliness to file the BOI report is also critical. Given the anticipated, increased volume of traffic, the time taken to process and upload documents to the FinCEN portal may take longer in the run-up to the deadline.

The sheer number of entities impacted by this deadline – estimated at 32 million – marks this event as one of significant concern. Given the potential to disrupt any ill-prepared businesses, it is advisable now to consider and analyse each potentially in-scope entity. As a case in point, FinCEN recently clarified that all US entities active at any point during the fiscal year 2024, and irrespective of any termination prior to the deadline, are mandated to submit a BOI Report, unless otherwise exempted.