FATCA and related regulations appear to be on low friction wheels.
As if to illustrate this point one of the first things I was going to cite was the continuing lack of guidance on the W-8 IMY and the W8-BEN-E.
Just as I was writing this the IRS released the long awaited instructions on the W8-IMY but at sixteen pages it will take a little while to digest.
Here is some more data:
- 2014 & 2015 are “transitional years” for the US version of FATCA but not for CDOT (the UK version).
- The transition only applies to organizations that can demonstrate “Good faith”. “Good Faith” may require an audit.
- Reporting on 2014 commences in 2015.
- At the time of writing 78 IGAs have been signed or agreed in substance.
- By September 21, 2014 the OECD Guidance on the AEoI is expected to be ratified.
- The buy side are already asking counter parties for their GIIN.
- Other regulations like the Dodd-Frank Act, EMIR, MAD II, MiFID II require classifications that are not the same as to those that FATCA requires.
- Even under FATCA, classification may change depending upon which version of FATCA is applied (e.g. UK or USA) or even by which IGA is applied.
What are we to do with all this data?
Here are 10 pragmatic ideas on how the regulatory path might be navigated using a risk based approach:
- Use the pre-FATCA forms until the end of 2014 (and possibly switch to outputs from (2) and (3) below). The IRS has conceded use of the pre-FATCA self certification up to the end of 2014.
- Keep on eye on substitutes to the W8s coming from the UK. The UK version of FATCA has no transition and it is not a good customer experience to use the US centric forms in the UK.
- Shape your TOM (Target Operating Model) around the AEoI. Technical Guidance is expected in June 2014. AEoI goes live January 1, 2016.
- Future proof your solution. In many ways 2, 3 and 4 are about precisely that but it is also worth factoring in the differences in the IGAs, for example the Mexico IGA works with average balances. Also TRACE requires the date of incorporation for legal entities.
- Form a risk based rather than gold plated approach to FATCA CDD. This might include not approaching customers who are on the IRS GIIN list and in a IGA Model 1 Country, classifying these entities as RDC-FFIs and focusing resources on the “higher risk” customers with no GIIN in Non IGA Countries.
- Approach classifications required by the regulations holistically rather then by silo i.e. cater for all the regulations at the same time.
- Keep a vigil over the IRS GIIN list. The vast majority of the first list was for FFIs in IGA Model 1 Countries (see point 5).
- Understand the differences in the IGAs, both pre-existing and in the pipeline. The differences are subtle but important, for example, the UK ditches telephone numbers as indicia and the concept of an OD-FFI does not exist in the UK. Also, Mexico uses average balances rather than end of year balances. (This ties in with point 3.)
- Form of view of which countries that are not yet under an IGA will fall under an IGA. This way you can focus on the non IGA deadlines that are more urgent e.g. CDD Completion on PF-FFIs by December 31, 2014. This is analogous to question spotting for exam preparation but will allow you to take a risk based approach to prioritization.
- A 24 hour Center of Excellence. With outreach and handling responses to outreach being across multiple time zones and multiple regulations it is likely that a 24 hour CoE spanning multiple regulations will be required for a smooth customer experience and completion within the regulatory deadlines.