About a-team Marketing Services
The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Talking Reference Data with Andrew Delaney: Just How Fat is Fatca?

Subscribe to our newsletter

With the final regulations for the Foreign Account Tax Compliance Act (Fatca) now published by the US Treasury Department and Internal Revenue Service (IRS), financial institutions have no more excuses for failing to get their houses in order to be compliant with the act. They certainly aren’t happy with the additional regulatory burden of Fatca, but there is no escape, and data for tasks such as client on-boarding, know your customer (KYC) and client reporting must be managed to achieve compliance in what could be a tight timescale for banks that have only just begun Fatca projects.

Draft regulations covering foreign financial institutions – or FFIs – that must report information directly to the IRS about financial accounts held by US taxpayers, or foreign entities in which US taxpayers hold a substantial ownership interest, were first set down by the IRS in February 2012.

Financial sector reaction was far from positive, with FFIs questioning why they should do the tax collection work of the IRS, how the US could impose such draconian regulation outside its own jurisdiction and how were they going to manage the registration and data delivery requirements of the regulations, let alone avoid penalties for non-compliance and, ultimately, Fatca withholding on payments to non-participating FFIs and recalcitrant payees?

There was little good to say about Fatca – there still isn’t – but the regulation rolled forward, some concessions were made in intergovernmental agreements sealed between foreign governments and the US Treasury, and FFIs must now enter into disclosure compliance agreements with the IRS identifying US citizens’ accounts and get ready to report required information on an annual basis.

The agreements will come into effect on January 1, 2014 – a deadline that was pushed back last year when final regulations were still not ready – and reporting will follow, along with withholding regulations that will roll out until all are in place and effective in 2018.

While financial institutions got to grips with the sheer scale of the task at hand, product vendors rallied round and numerous software solutions and services came to market, ready to be tweaked when the US Treasury nailed the final regulations. Indeed, the market is pretty full, with the likes of Thomson Reuters, Dion Global, Navigant, Swissrisk, Nice Actimize, Markit, Trillium Software and Compliance Technologies International just some of those hoping for a slice of the action. Then there are the large consultancies keen to guide financial institutions from initial shock to the completion of Fatca compliance.

No doubt, such solutions and guidance will help some financial institutions comply with the legislation, but the real deal is in data management within financial firms. They will need to invest in understanding their customer bases, onboarding clients with the Fatca regulations in mind, building functionality for withholding against recalcitrant account holders and developing an annual reporting system that will make sure they don’t get on the wrong side of the IRS.

It could be that a single institution has as many as 100,000 accounts that need to be investigated before those that are subject to Fatca can be verified, and it is likely that most financial institutions will be touched by the legislation.

Fatca is – as it says on the tin – a big, fat burden. It’s hard to identify much other recent legislation that has achieved such a poor popularity score in the industry, but there could be some benefit in the outcome of compliance as company’s clean up their data, improve its management and gain a clear understanding of their customers that could, in turn, be used as the basis for new product development and marketing.

If there is one small satisfaction in Fatca that is not about data at all, it is the fact that governments beyond the US may seek revenge, although I am sure they won’t call it that, by writing their own Fatca-style regulations for overseas tax collection.

Subscribe to our newsletter

Related content

WEBINAR

Upcoming Webinar: Approaches to ESG data for the Sustainable Finance Disclosure Regulation (SFDR)

Date: 14 July 2022 Time: 10:00am ET / 3:00pm London / 4:00pm CET Duration: 50 minutes The EU Sustainable Finance Disclosure Regulation (SFDR) outlines extensive rules designed to ensure transparency across sustainable financial markets. It also demands huge volumes of non-financial ESG data to be sourced, managed and governed, some of which is difficult to...

BLOG

Liontrust Implements Fundipedia Platform to Gain Golden Source Data

Liontrust Asset Management has implemented Fundipedia’s data management platform to provide golden source, validated, and trustworthy data for both the company and its downstream data vendors. The project was delivered by Fundipedia’s implementation team, which onboarded Liontrust’s data in less than 12 weeks. Vinay Abrol, chief financial officer and chief operating officer at Liontrust, says:...

EVENT

ESG Regulation, Reporting & Data Management Summit (Redirected)

This summit will explore challenges around assembling and evaluating ESG data for reporting and the impact of regulatory measures and industry collaboration on transparency and standardisation efforts. Expert speakers will address how the evolving market infrastructure is developing and the role of new technologies and alternative data in improving insight and filling data gaps.

GUIDE

ESG Data Handbook 2022

The ESG landscape is changing faster than anyone could have imagined even five years ago. With tens of trillions of dollars expected to have been committed to sustainable assets by the end of the decade, it’s never been more important for financial institutions of all sizes to stay abreast of changes in the ESG data...