Compliance

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Becca Lipman
Becca Lipman
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FATCA Compliance Still Global Nightmare

In a survey of finance executives, 67% report that the complexity of FATCA requirements is the top hurdle to achieving compliance.

The complexity of the Foreign Account Tax Compliance Act (FATCA) requirements is the top hurdle to achieving compliance, according to a Strategies for Achieving FATCA Compliance survey conducted by the technology firm Mindtree.

In an effort to eliminate noncompliance by US taxpayers, FATCA requires foreign banks to identify, report, and disclose US accounts. Before financial firms can even worry about the reporting element (which includes correctness of reporting toward 1042, 1042S, 8966, and W8BEN forms), they have to accomplish the most basic of obligations: Identify the products and customers that fall under the scope of FATCA withholding and reporting.

According to Subhasis Bandyopadhyay, head of capital markets at Mindtree, banks are still struggling with effective account identification. This includes the linking of accounts of an individual or entity across different business units (e.g., banking, custodial, depository, and insurance) and within the same business unit (like individual and joint bank accounts).

Though the tax law went into effect July 1, the IRS announced in May that calendar years 2014 and 2015 would be regarded as a "transition period" for the purposes of enforcement and administration of the due diligence, reporting, and withholding provisions under the act. Helpfully, the IRS says, it "will take into account" the extent to which entities such as foreign financial institutions and withholding agents made "good faith efforts" to comply with their obligations.

Entities that cannot demonstrate that they have made good faith efforts will not be entitled to relief from IRS enforcement during the transition period.

[Read more about the challenges of FATCA compliance: FATCA: A US Regulation That's Having a Global Impact]

Bandyopadhyay says this good faith clause gave some relief to banking and financial companies subject to FATCA, but some firms are falling behind in checking the compliance boxes.

"The majority of the bigger banks are now in control with this complex regulation and completed their product assessment phase and currently undergoing the implementation phase," he says. "But the majority of banking and financial services companies are still facing the heat of the complexities of FATCA requirements to comply. Most of them are reporting that the due diligence procedures are causing a major business challenge for them, mainly in the space of tracking the participating financial institutions and nonfinancial entities."

The Mindtree survey of 45 senior financial executives subject to FACTA was conducted ahead of the deadline in May and June. In the survey, 49% of respondents said FATCA verification and due diligence procedures present a major business challenge. Tracking participating financial institutions and nonfinancial entities presented a major challenge for 42% of respondents.

The survey also alludes to a possible reason many firms are struggling. When asked which department was responsible for FATCA compliance, popular answers included the CFO (24%), the chief risk officer (22%), the chief compliance officer (13%), the tax department (9%) and the CEO or COO (6%). A surprising 27% admitted they didn't know who was responsible.

"One important point is that most of the bigger banks are now working towards the FATCA quality assurance pack that is designed to identify any gaps in the implementation process, report issues to stakeholders, and enable informed decision making," says Bandyopadhyay. "But on the other side, the small and midsized banks are still way behind, and they have to soon pull up their socks to achieve the same at the earliest."

Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio
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Greg MacSweeney
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Greg MacSweeney,
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10/9/2014 | 10:36:30 AM
No winners
FATCA is so complex and so far reaching, there will be few winners at the end of the day. I guess the IRS will collect some more $$, but at a significant cost. The only winners in this game will be the consultants and attorneys hired to help achieve FATCA compliance.

How complex is it? According to the survey, 27% of respondents don't even know who is responsible for compliance. Yikes.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
10/9/2014 | 11:37:30 AM
Re: No winners
If you think it's complex now wait until other countries try to institute similar regulations. I've heard on a couple of different occasions that other countries are looking at FATCA and thinking of replicating it, particularly China. The consultants and attorneys will really be rolling in it then.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
10/9/2014 | 1:30:40 PM
Re: No winners
Yeah, no kidding. I don't think the US would like it if other countries started to implement similar laws.

FATCA's draconian measures are starting to be challenged, though. There are a couple of lawsuits in Canada already. Basically, one suit claims that compliance with FATCA by Canadian banks is forcing the dissemination of private (personal) information to the US, which is against Canada's personal privacy laws.
SomebodySmart
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SomebodySmart,
User Rank: Apprentice
10/10/2014 | 8:09:56 PM
Re: No winners
They're trying to raise enough money for legal costs. The future of Canada and the financial world depends on it. isaacbrocksociety.ca
Becca L
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Becca L,
User Rank: Author
10/30/2014 | 12:19:28 PM
Re: No winners
There's been a lot of talk abotu shared services for KYC (Know Your Customer - customer onboarding), which plays a huge role in FACTA reproting. Shared services mean a customer only has to enter/update their informaiton once and it can be drawn on by a number of firms taking on that customer so they dont have to bombard them with requests for documetns and paperwork. Shared services also help massage the raw data into reporting for internal use and regulators. That last part is going to be essential if other countries start taking on their own FACTA-like laws! Imagine all the fuss being made juts to meet FACTA reporting, there's no way it will be duplicated again and again - or that firms are going to put up with consultants fees doubling or tripling - if what you say is true, shared services are going to be improtant going forward.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
10/30/2014 | 2:55:23 PM
Re: No winners
Shared services would definitely help with all of the information that has already been gathered. But with KYC there's still an issue in gathering information, especially in geographies that are not heavily integrated into the financial system already. So that would probably still be an issue even if some kind of shared service was instituted for FATCA.
SomebodySmart
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SomebodySmart,
User Rank: Apprentice
10/9/2014 | 7:30:34 PM
FATCA a disaster abroad
FATCA is a disaster to people abroad infected with USA citizenship because banks are required to disclose accounts on which the person is a signer even if the person is only signing for a company where she works. Businesses refuse to hire people born in USA even if they are local citizens as well. These people are no more "Americans" than U.S. Senator Ted Cruz was a "Canadian" when he learned in 2013, by reading a newspaper article, that he was still a citizen of Canada. Suddenly these people face criminal charges and devastating financial penalties for failing to file forms with IRS when they don't even live in the USA. The boundaries of the United States are the boundaries of the United States. Enough is enough.
fstechexec
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fstechexec,
User Rank: Moderator
10/10/2014 | 12:02:03 PM
Re: FATCA a disaster abroad
It's crazy how far reaching this law is. Absolutely nuts. #FATCAstinks
Becca L
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Becca L,
User Rank: Author
10/30/2014 | 12:13:52 PM
Re: FATCA a disaster abroad
I haven't heard about businesses refusing to hire americans because of the complication, but it make some sense. It also jives well with the headlined stories of American Ex-pats handing in their US passports due to FATCA. Imagine if the US loses more tax income from worldwide income of expats than this law brings in. Geesh. http://www.iexpats.com/surge-us-expats-returning-passports-due-fatca/
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