Survey reveals limited readiness for FATCA duties among institutions, as July deadline looms

Despite US Internal Revenue Service deadline extensions to comply with the landmark provisions of the Foreign Account Tax Compliance Act of 2010, financial institutions are ill-prepared to tackle their duties and even to understand the mandates, even though they bear the major compliance burden.

These are two of the findings of a revealing survey released by NICE Actimize, a large global provider of financial crime, risk and compliance software. A total of 170 persons at 100 financial services firms were surveyed on various aspects of the law known as FATCA.

FATCA will be implemented in phases. The first implementation date is July 1, 2014, or six months later than originally planned before the IRS granted a six-month extension.

FATCA applies to virtually all financial institutions in the world. It seeks to identify US taxpayers with bank, other financial accounts and other specified assets outside the United States. FATCA requires “Foreign Financial Institutions” to report to the IRS persons who meet six criteria of US taxable status. Failure to do so subjects the FFIs to a 30% withholding tax imposed on payments to which they are entitled from financial or commercial sources in the United States.

US financial institutions act as withholding agents and must be compliant by July 2014. They must also monitor the requirements of FATCA Intergovernmental Agreements (IGA) that the US Treasury Department has signed with various countries. Under some IGAs, US institutions will be required to furnish the names and account information of persons for whom they maintain accounts and are taxpayers of certain IGA signatory nations.

Foreign Financial Institutions (FFIs) must implement new procedures for opening accounts and reviewing existing account by July 2014. They will begin reporting on March 31, 2015.

The NICE Actimize survey found that less than 5 percent of the respondents said they had completed FATCA implementation or were close to finishing. 55 percent rated their understanding of FATCA as “average” to “poor.”

The respondents identified a series of challenges facing their institutions:

  • a lack of clarity of regulatory duties,
  • identification of accounts of persons subject to US taxation,
  • a scarcity of FATCA expertise,
  • the impact on operations,
  • issues dealing with data,
  • conflicts of laws and procedures among countries where they operate,
  • reporting responsibilities,
  • beneficial ownership questions,
  • compliance procedures for the 30% withholding.

Apart from this uncertainty FATCA appears not to have found a resting place in most financial institutions. Most respondents said their compliance departments had some responsibility for FATCA compliance About 52 percent said FATCA had been placed in other departments. More than half of the respondents said there was still no clear decision on who manages FATCA compliance, indicating that a combination of departments that deal with operations, tax or finance may manage FATCA compliance.

(Click to see the full NICE Actimize FATCA Survey report)