Markit and Compliance Technologies International (CTI) have teamed up to target the Foreign Account Tax Compliance Act (Fatca) compliance market, but unlike most vendors the companies propose a Fatca service bureau rather than a deployed or hosted solution. Their aim is to serve fund types and sizes that typically outsource IT and do not have in-house systems to support compliance with the legislation.
The companies developed the bureau concept for Fatca compliance after responding to client requests for online help with US Inland Revenue Service tax forms W-8 and W-9. The resulting service combines the online document sharing capabilities of Markit Counterparty Manager (formerly Markit Document Exchange) and the tax expertise of CTI, allowing funds such as hedge funds and smaller asset managers to complete and validate the tax forms online.
When the Fatca legislation was passed, Markit and CTI saw a natural extension to their work. Lansing Gatrell, director and co-head of Markit Counterparty Manager, explains: “Fatca will have an impact not only on banks, but also on funds. Banks have infrastructure and compliance and tax teams that are well versed in responding to requirements such as those of Fatca. Typically, funds don’t have these kinds of teams and often outsource IT. So, on the basis of our work with asset managers to help them manage and share documents with broker dealers, and the tax reporting tool we built with CTI last year, we decided to develop a fully outsourced service to help funds comply with Fatca and avoid tax withholding.”
The companies’ global Fatca Service Bureau has been built on a modular basis and steps through every aspect of Fatca compliance from determining a fund’s Fatca classification and performing gap analysis on account documentation, to validating tax forms, registering foreign financial institutions (FFIs) with the IRS and reporting financial information to the IRS. The modular approach to the service is designed to allow funds to use either all of the component parts in a seamless way or allow fund administrators to perform some of the requirements, perhaps reporting, while the service supports elements such as FFI classification and registration with the IRS, a task that can be performed by CTI as it is a registered tax advisor.
Cyrus Daftary, co-founder and executive director at CTI, comments: “Working with Markit to expand our outsourcing operations in the Fatca Service Bureau makes it easy for funds and financial institutions to have their Fatca compliance needs met by our team of experts.”
The service is not yet up and running as final Fatca rules have yet to be published, but with these expected to be made public as soon as next month Markit and CTI are ready to finalise the service and sign up customers. “We will offer a fully outsourced service from trusted providers. The service is modular so it can work with existing tasks carried out by fund administrators and we have been able to industrialise the service so fees are not too high. Fees depend on the size and complexity of a fund, but we reckon that 85% of the funds we will cover with pay an average $10,000 to $30,000 a year for the Fatca compliance service,” says Gatrell.
He adds that while competitors offer some parts of the full service solution, for example document collection or reporting, few offer a full suite including recognition from the IRS for FFI classification and registration, elements that are often handled by law firms. Looking forward, Gatrell suggests the documentation built up for Fatca compliance on Markit Counterparty Manager could be used and expanded to support additional regulations as they come into play.