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Talking Reference Data with Andrew Delaney: A Tonic for the FATCA-Brand GIIN

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If Solvency II is considered the most onerous of the regulatory regimes about to hit our financial data community, then FATCA surely is not far behind it – and it is now officially the most imminent.

Indeed, following a slight delay (from July 15), the US tax authorities this week unveiled the FATCA registration portal, effectively setting the clock ticking for practitioners to address the regulation. As is so often the case with the barrage of regulations that impact how financial institutions deal with their data, the time to act is now.

FATCA could prove to be the regulation that dominates the rest of 2013, which is why it will feature strongly at our Data Management Summit in London on October 3, and in our Hot Topic series of webinars this autumn. In each of these, we’ll be hearing from expert commentators on what steps firms should be taking to comply with the four basic requirements of FATCA as outlined below. If you want to get involved, get in touch.

As Solvency II applies to the asset managers and their servicers adjacent to the target segment of insurance, so FATCA will apply to regimes beyond the US. Those in the know are warning of a whole raft of Sons of FATCA coming soon to a sovereign (or not-so-sovereign) territory near you. And that doesn’t even count the stuff you need to do right now.

In case you weren’t aware, FATCA is the Foreign Account Tax Compliance Act. What started as a law to catch US tax cheats – crudely designed by some accounts – is growing into an international framework for tax information sharing, from which almost no institution is immune.

The reason it’s important is that under FATCA, firms will be penalised for interacting with counterparties without a so-called Global Intermediary Identification Number (GIIN). Getting a GIIN requires registration, and that may prove taxing – pardon the pun – for certain market practitioners. Am I part of an expanded affiliate group? Am I a fund, a feeder fund? Do I use special purpose vehicles (SPVs)? And so on.

Dealers are saying: We realise we can’t deal with a firm that isn’t compliant. We can’t run that risk. Come next April, market participants will be able to check counterparties and issuers against a list of GIINs, indicating FATCA compliance.

If your GIIN doesn’t match, you’re toast.

And it’s not just an American Thang.

Lansing Gatrell at Markit, who looks after the company’s FATCA Service Bureau – powered by Markit Counterparty Manager, the former Markit Document Exchange (MDE) – FATCA is no longer about US clients or US assets. It’s a question of where the financial institution in question is domiciled and whether US securities are involved.

Without getting into too much detail, the US tax authorities have been signing so-called intergovernmental agreements (IGAs) to cover enforcement of the FATCA rules, which will be done locally.

According to Gatrell, firms now need to ask themselves:

·         Am I domiciled in an IGA country?

·         If not, do I trade US assets?

“If the answer to either of those questions is ‘yes’, firms need to figure out how they will do the following FATCA requirements – classification, registration, validation (new and old clients), and reporting,” he says.

So far, the going has been slow.

Jon Asprey at Trillium, which helps firms with the data aspects of FATCA and other regulations, says that so far, less than a dozen IGAs have been signed, a far cry from the 75 or so the US authorities had expected to be in place by the end of 2012.

Part of the problem, Asprey says, is that many IGA signatories are seeking some form of reciprocity. Moreover, IGA signatories have their own complexities to deal with. The UK, for example, has several crown dependencies. But that doesn’t mean it can unilaterally impose IGA requirements on the likes of Jersey, Guernsey and the Cayman Islands

Those affected – banks, fund administrators, asset managers, you name it – will need to register on the new portal. And while registration itself is not particularly onerous, the classifications firms enter for themselves can be complex to figure out, and can have far-reaching ramifications for future reporting requirements.

“Significant work can be required to determine the proper classification and to assess client documentation,” says Gatrell. “Those who have not yet started preparation need to do so sooner rather than later.”

One bright spot, he adds: “Now the portal is open, funds will have the ability to ‘experiment’ and classify and reclassify themselves until the end of the year.”

Firms are looking for advice on how to get compliant, but some of the four key functions require a level of tax expertise that a fund administrator or tax advisor may not have. To help them with the task at hand, banks and custodians are turning to accountants, lawyers, and IT service providers for advice. Funds in turn are turning to their existing vendors, particularly transfer agents and fund administrators, with the expectation that FATCA is their responsibility.

Major institutions will be reasonably equipped to deal with the immediate requirements of the regulation. Indeed, they may have the opportunity to offer solutions to their clients. But smaller firms, particularly funds, may not be. And the complexity of their operations only adds to the challenge to be compliant.

So what should practitioners be doing now that the proverbial line has been drawn in the sand?

According to Gatrell, getting registered as soon as possible is the obvious first step. Those firms that need to ‘repaper’ their clients, he counsels, should do so using the today’s W-8 forms, which can be used until the end of the year (when a new, more complicated W-8 will be introduced) and are valid for three years. Then sit back and wait for the fallout.

Repapering with “old” forms now enables funds to take advantage of peoples’ familiarity with the current W-8, Gatrell reckons. With repapering complete, funds can continue to operate as usual without making major investments in new processes only to find that regulators revise FATCA requirements in the short or medium term.

In short, things may change now that the registration process has been unveiled. Trillium’s Asprey reckons a whole raft of new Sons of FATCA could be down the pike, as sovereign states move to follow the US’s lead. “A global FATCA may take some time to emerge,” he says, but the process may well be under way.


Which is how we like it, since it gives us the opportunity to open up the discussion.

The clock is now ticking. We’ll be webinaring about FATCA soon. And it will be a topic at our DMS conference on October 3. We look forward to hearing your two cents’ worth (declared to the US tax authorities, of course…) – over a GIIN and tonic.

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