We've heard a lot about Dodd-Frank and the upcoming (at some point) registration rule that will be imposed on many hedge funds. European, funds will have to content with the Alternative Investment Fund Managers Directive (AIFMD). Both laws have generated countless headlines. But there is a another looming regulation--one that has generated much less press--that hedge funds and all other asset managers cannot ignore.

The Foreign Accounts Tax Compliance Act (FATCA) has been hailed as a victory for all those concerned that offshore shadow banking activity was siphoning away tax revenue from the U.S. government. As the Financial Times notes, FATCA, which will take effect January 1 2013, "Requires details of all US clients with assets of at least $50,000 to be passed to the US Internal Revenue Service."

This has led to some to conclude that the IRS is outsourcing their tax collection work to financial firms. That's one way to look at it. The other way to look at the law is in light of the UBS tax scandal, in which many Americans were caught--many gave themselves up under an amnesty program--hiding assets overseas to avoid taxes. While the need for the law is understandable, the actual requirements are less so.

This will no doubt take a lot of systems investment, which will likely prove very expensive when all is said and done. One issue is that in many cases, while the financial firm in question provides a product, the actual client comes in via a distributor. This could get very complex very quickly, and it will be incumbent on regulators to provide lots of documentation and guidance. The last thing we need is another Sarbanes Oxley-like implementation quagmire, when confusion reigned at many companies, forcing some to embrace the most cautious, and most expensive practices. That said, Sarbox has turned out to be a plus in many regards.

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