03.01 – Introduction

Reporting UK Financial Institutions (UKFIs) must provide information to HMRC on an annual basis about Financial Accounts held by Specified US Persons. In the Agreement, these accounts are referred to as Reportable Accounts.

A Financial Institution, unless otherwise exempt, must identify:

  • whether it maintains any Financial Accounts
  • the type of Financial Accounts held, and
  • whether the account holder of those Financial Accounts are Specified US Persons or Controlling Persons of a passive NFFE.

A Financial Account is a US Reportable Account where it is held by one or more Specified US Persons, or by a Non-US Entity with one or more Controlling Persons that are Specified US Persons. If the account holder of a US Reportable account ceases to be a Specified US Person, or the Controlling Persons of a Non-US Entity cease to be Specified US Persons, then the Financial Account will cease to be a US Reportable Account.

For the purposes of the Agreement the term Financial Account is broadly defined and, therefore, may include products or obligations that would not normally be regarded as an ‘account’ in either other UK legislation or in everyday commercial use. For example, it includes all Cash Value Insurance Contracts (regardless of the cash/surrender value of the contract), Annuity Contracts and Equity and Debt Interests.

The definition of a Financial Account does not extend to shareholdings on an issuer’s share register nor debenture/loan stock holdings (including shareholdings that have been the subject of an acquisition, as a result of which the original share register no longer exists).

However, shareholdings and loan/debenture stock holdings by a Financial Institution can be ‘financial instruments/contracts’ and are reportable if held in a Custodial Account (See Section 3.4).

Where a Financial Institution is acting as an executing broker, and simply executing trading instructions, or receiving and transmitting such instructions to another executing broker, (either through a recognised exchange, multilateral trading facility or non-EU equivalent of such, a clearing organisation or on a bilateral basis) then the Financial Institution will not be required to treat the facilities established for the purposes of executing a trading instruction, or receiving and transmitting such instructions, as a financial account under the Agreement. In these cases, the Financial Institution acting as a custodian will be responsible for performing due diligence procedures and reporting where necessary.

It is also possible that a Financial Institution acting as an executing broker may be subject to failed trades and find themselves with the legal ownership of the asset that they intended to broker. In this case neither the holding of the asset, nor any resultant claims (market claims such as the passing of entitlement on dividend and coupon payments, claims compensated through a clearing house, securities depository, etc.)) will lead to a financial account being established by the executing broker.

In certain circumstances “placing agents” will typically acquire shares for a 2-3 day period (maximum seven days) and hold these as nominee for an underlying investor. The placing agent will also have cash funds deposited by the investor for a similar period. The two would ultimately be matched and the shares delivered to the designated custodian of the investor. To eliminate the creation of a series of custodial accounts which would open and close in a 2-3 day window and, therefore, be potentially reportable such funds will not be regarded as Financial Accounts provided that;

  • The account is established and used solely to secure the obligation of the parties to the transaction.
  • The account only holds the monies appropriate to secure an obligation of one of the parties directly related to the transaction, or similar payment, or with a financial asset that is deposited in the account in connection with the transaction
  • The assets of the account, including the income earned thereon, is paid or otherwise distributed for the benefit of the parties when the transaction is completed

Accounts maintained by Financial Institutions

In relation to each type of Financial Account, “maintained” has the following meaning:

  • A Depository Account is maintained by the Financial Institution, which is obliged to make payments to the account.
  • A Custodial Account is maintained by the Financial Institution that holds custody over the assets in the account (including a Financial Institution that holds assets in the name of the broker (“ in street name”) for an account holder.
  • An Insurance Contract or an Annuity Contract is maintained by the Financial Institution that is obligated to make payments on the contract.
  • Any Equity or Debt Interest in a Financial Institution, where that Equity or Debt Interest constitutes a Financial Account, is treated as being maintained by that Financial Institution where that Financial Institution is an Investment Entity.

A Financial Institution may maintain more than one type of Financial Account. For example, a Depository Institution may also maintain Custodial Accounts as well as Depository Accounts.

When a Financial Account is created will depend on the type of the account. An account will be created when the Financial Institution is required to recognise the account based on existing operating procedures or under the regulatory or legal requirements of the jurisdiction in which it operates.

Where a customer exercises their cancelation rights (i.e. they cancel the account within the “cooling off” period) a Financial Account is created and the value to be reported (if reportable) is the closing value.

Reportable Accounts

A Financial Account is a US Reportable Account where it is held by one or more Specified US Persons, or by a Non-US Entity with one or more Controlling Persons that are Specified US Persons.

Reporting Financial Institutions with no Reportable Accounts will be required to make a nil return to HMRC on an annual basis.

Section 4 and subsequent sections set out the due diligence procedures that must be followed by a Financial Institution, or by a third party on behalf of the Financial Institution, to identify Reportable Accounts.

Where a Financial Institution engages a third party to carry out the Financial Institutions’ due diligence and reporting obligations, then those obligations remain with the Financial Institution.

Ceasing to be a Reportable Account

If the account holder of a US Reportable account ceases to be a Specified US Person, or the Controlling Persons of a Non-US Entity cease to be Specified US Persons, then the Financial Account will cease to be a US Reportable Account.

If the account holder, or the Controlling Persons of a Non-US Entity, are Specified US Persons at any point in the reportable period then the Financial Account will be a US Reportable Account for that period.

However, following a change in circumstance, if the Financial Institution is not in a position to review multiple statuses held during the reportable period when preparing their FATCA return (for instance if the account holder has had one or more changes in address) then the Financial Institution should treat the Financial Account as US Reportable Account or not based on the status at the end of the reportable period.