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"To prepare, you should undertake a thorough review of your current processes and governance to ensure you can collect and validate the required data efficiently." 

  

 

Steve Folkard, pa fatca expert 

Navigating the uncertainties of FATCA

HM Treasury in the UK and its counterparts in France, Germany, Italy, Spain and the United States, have issued a joint statement announcing the publication of the Model Intergovernmental Agreement to Improve Tax Compliance and Implement the Foreign Account Tax Compliance Act (FATCA).

The Model sets out a framework which has the following implications for the UK:

  • the legal barriers to compliance, such as those related to data protection, have been addressed

  • withholding tax will not be imposed on income received by UK financial institutions

  • UK financial institutions will not be required to withhold tax on payments they make

  • due diligence requirements are more closely aligned with requirements under existing anti-money laundering rules

  • more institutions and products are effectively exempt from FATCA requirements.

However, the detail of the agreement has yet to be finalised. With a consultation on the final model still to take place in the UK this year and draft legislation to implement the agreement not expected until late 2012, the key questions for firms are how and where to start preparing for the implications of the agreement. 

To ensure that your organisation is well placed to comply with FATCA’s final requirements and able to respond to any changes that materialise during the consultation process, you should:                 

  • identify which customers and entities will be covered by the legislation

  • ensure you can collect and validate the data that is likely to be required, in an efficient manner

  • adapt existing processes to make regular reporting easier in the future. 

Identify which customers and entities are covered by FATCA

The agreement seeks to cover most entities and products where substantial assets are likely to be held, including trust arrangements. You should therefore proceed on the assumption that your organisation will be covered by the agreement.

If you are a bank, insurance company, financial exchange or investment management firm, from 2013 you are likely to have to provide:

  • information on identified account holders and controlling persons who exercise control over a trust or entity

  • information identifying accounts or policies held

  • the account balance or value (including, in the case of a cash value insurance contract or annuity contract, the cash value or surrender value) as of the end of the relevant calendar year or other appropriate reporting period or, if the account was closed during such year, immediately before closure.

From 2015, these requirements will extend to custodial and depositary accounts and, from 2016, to property redemptions under custodial accounts.

Firms, products and beneficial owners likely to be exempt from reporting include retirement/pension plans and policies with deposits below minimum levels. However the minimum levels will vary according to policy type so, for simplicity, you may choose to include all policies in your FATCA report.

Ensure you can collect and validate the data required by FATCA

The agreement defines the review procedures for pre-existing accounts in some detail, with procedures differing depending on whether accounts are ‘low value’ (below $1m) or ‘high value’ (over $1m). In both cases, your electronic databases will need to show a specific set of information for these and future accounts. If they don’t, you will be obliged to undertake paper-based record searches. 

To prepare, you should undertake a thorough review of your current processes and governance to ensure you can collect and validate the required data efficiently. Many of the requirements for FATCA will overlap with existing anti-money laundering and know-your-customer requirements. Nevertheless, the challenge of providing regular reporting and keeping records up to date for FATCA will form a key part of your compliance activity from here on.

Adapt existing processes to make regular FATCA reporting easier

With your review complete, you will need to amend processes and alter disclosures to ensure customers are aware how and when their information will be shared, and obtain exemption forms where relevant. You will also need to introduce more rigour to the process of aggregating account values, developing a single customer view and identifying the controlling parties to a trust at a greater level of detail than before.

Defining your processes in a way that enables you to extract, aggregate and validate customer information cost-effectively will not only ease the burden of FATCA, but also reduce the risk of your facing sanctions for non-compliance.

PA Consulting Group has worked with a wide range of organisations to evaluate and redesign structures and processes for addressing regulatory change. We have helped major clients in the banking and insurance sectors shape effective programmes at speed across the regulatory, marketing and distribution functions. We supported the UK’s Financial Services Authority during the implementation of Solvency II and have helped other leading regulators worldwide design their operations and enhance delivery.

To find out how we can help your business prepare for FATCA please contact us now.

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