Participation in FATCA is not an option, it is here to stay, and it is part of a global initiative. FATCA is complicated, and for the bankers, it has implied learning new terminology and understanding thousands of pages of a regulation that is written for a person that specializes in the tax laws of the United States.
The risks of lack of FATCA participation include:
- 30% withholding of income streams from the U.S.
- Loss of Correspondent Accounts
- Loss of clients
- Isolation from the Financial Community
- Perception of Lack of Transparency (financial crime classified within the same category as money laundering)
Financial Institutions have to certify that the existence of the FATCA compliance program:
- Ensures compliance with all of the commitments and requirements of the FFI agreement.
- Includes documentation of the Institution’s FATCA policies and procedures.
- Includes internal controls and periodic revisions as appropriate to ensure FATCA compliance, the documentation of any material failures and the remediation taken.
According to the FATCA regulation, Material Failures can result when one or more persons from the Financial Institution cause non-compliance with the agreement — intentionally or because of a lack of proper internal controls. Material Failures include:
- Non-compliance, systemically or intentionally, in; reporting of affected accounts, making the required withholdings and payments to the IRS, the reporting and required treatment of recalcitrant accounts or those of Non-Participating Financial Institutions.
- A sanction imposed by a regulatory body that has identified a Financial Institution’s non-compliance with the required due diligence and/or KYC that prevents the correct identification of clients impacted by the regulation.
- Failure to establish the required tax reserve or provision account to respond to any future financial responsibility to the IRS for non-compliance.
Continuously updating FATCA policies and procedures presents a challenge, as does the requirement of providing continuous training for new employees while training existing employees on FATCA updates
Continuous updating of the FATCA program is a critical success factor as the IRS continues to publish multiple clarifications and changes to the regulation, delivery dates, and forms.
IS YOUR FATCA STAFF FATCA CERTFIED? Get started on assuring that your Financial Institution has mitigated non-compliance FATCA related risks!