Thomson Reuters is making a second foray into the market for Foreign Account Tax Compliance Act (Fatca) compliance solutions with a data management product designed to help financial institutions identify and tag securities that are subject to Fatca regulation and those that are exempt or, in Fatca terms, grandfathered obligations.
The company made its first approach to the market in January 2013 with Thomson Reuters for Fatca Solution, a workflow tool for compliance officers that supports the fulfilment of Fatca requirements inherent in functions such as client on-boarding and tax information reporting.
The company’s second service, Thomson Reuters Fatca Go is designed as a data management solution. It filters towards 10 million records within the company’s core databases to identify securities with US-sourced dividends, interest and other fixed or determinable annual or periodic (FDAP) income that are subject to Fatca and those that meet the US Internal Revenue Service (IRS) definition of grandfathered obligations that are exempt from Fatca withholding regulations.
Fatca takes effect on January 1, 2014, leading Tim Lind, global head of middle office at Thomson Reuters, to comment: “There is a sense of urgency now as institutions must populate required data fields and make sure the data is correct. If it is not, they could face fines, penalties and unhappy customers.”
Fatca Go is in tests with a production version scheduled to be ready by July 2013 at the latest. It is powered by Thomson Reuters DataScope, which will deliver files and reports to clients as well as updates to ensure users sustain compliance. Lind expects clients to opt for a bulk file to update and tag universes of securities in the first instance, although using DataScope Select it is possible to receive data on selected securities in response to ad hoc enquiries. Clients can match their records to Thomson Reuters’ using Cusip codes, and soon ISIN codes.
Beyond the initial Fatca Go service, Thomson Reuters will monitor regulatory modifications that remove an exemption for Fatca withholding and plans to monitor the registration status and compliance of foreign financial institutions that must identify US accounts and report to the IRS as part of Fatca reporting.
While there may be no grandfathered obligations after January 2014 as exemption has, so far, been given only to securities that are outstanding in January 2014 but have fixed maturities and life spans, Thomson Reuters will continue to update Fatca Go in line with the regulation and any changes.
Lind expects to see demand for similar solutions if countries outside the US set up their own Fatca-style regulations. He explains: “The door swings both ways. Countries including the UK, Switzerland, France and Denmark are looking at the potential success of Fatca and could seek reciprocity with the IRS. If different Fatca-style regulations pop up, we would build the necessary files to help financial institutions prepare for them.”
Fatca is perceived by many as a preposterous demand by the IRS as it essentially requires banks outside the US to collect tax on its behalf. But with intergovernmental agreements that ease the burden on individual institutions by requiring local tax authorities to aggregate data and report to the IRS, and other countries looking at similar measures, it is here to stay.
For Lind, Fatca is a leading example of growing regulatory requirements to classify securities and entities so that regulators can aggregate and link data to get prudential oversight of the market. He concludes: “From a data perspective, how we classify people, securities and entities is more important than ever before. We are at the foothills of the mountain in terms of classifying securities and entities in specific ways for specific regulations.”