FATCA Compliance Will Cost Banks 5 Times that of Client Money Compliance, Warns Crossbridge

Crossbridge , the financial markets consultancy, today warned that complying with the incoming FATCA legislation from the US could cost investment banks five times as much as complying with the UK’s new CASS regulations, which will be implemented in little over a month’s time. Indeed, one bank that Crossbridge is working with has assigned 40% of its entire global Operations change budget to meeting the challenges posed by FATCA.

Louise Courtman, Associate Partner at Crossbridge, said: “FATCA is a huge issue for the banking sector, and one that will far outweigh the costs and challenges of CASS compliance. With 15 months to go before FATCA is introduced, the industry’s focus on the impact of these new regulations is sharpening. It makes sense for banks to start applying FATCA due diligence now to all new clients that they take on.”

“We’re seeing banks assigning nearly half of their change and operations budgets just to FATCA – that’s how big of a deal this is for the industry. Banks are forming working groups to try to sketch out the level of work involved in compliance and to do the impact assessments. FATCA doesn’t just affect a single function, it’s all asset classes and all functions of the bank. That’s why the change budgets will be five times bigger than for client money.”

Crossbridge estimates that the cost of FATCA compliance could be anywhere between £30-£50m for an investment bank, without taking into account any fines, as it is not yet clear how the IRS will deal with non-compliance. Crossbridge recommends the following areas of consideration for banks starting  to prepare for FATCA:

1.      Start now, begin to put controls in place for all new clients;
2.      Leverage where possible some of the work done within other regulatory projects  and gather information now;
3.      Think ahead consider the volume and access or reporting needs for new documentation and storage methods;
4.      Be aware that FATCA will impact your cost per trade, reducing profit margins and driving down revenue, forecast accordingly and look to align FATCA with other cost-per trade programmes
5.      FATCA is not just about investment banking, leverage across the bank – it’s wealth management, retail banking and fund management;