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Full-fat FATCA still applies for most global firms

Julian Skingley, partner in financial services at Ernst & Young EMEIA, comments on the recent FATCA intergovernmental agreements (IGAs)…

The announcements from the IRS today will be welcomed by the financial services industry, particularly those domestic institutions in the EU5, as they include crucial concessions on timescales, scope and documentation requirements.  It’s encouraging that the respective governments have listened to the concerns of the financial services industry and, although the task of implementing FATCA remains substantial, it now at least looks more achievable.  As ever with FATCA, the good news for some organizations opens up a whole new raft of questions for others.

Those organizations operating solely in the EU5 have gained an extra six months in which to be ready to report and the onerous documentation for onboarding has been largely removed, reducing one of the most challenging impacts of FATCA.  This is a slimmed down version of FATCA and will be welcomed by domestic players in these markets.

Whilst today’s announcement is good news for those businesses within the EU5, these intergovernmental agreements are prolonging the uncertainty for global organizations. We have now entered a wait-and-see period while it is unclear who else will sign up to an IGA, which version and when.

Global organizations may now have to run a twin if not triple track model for their FATCA implementation and will be keen to get on and operationalise the change across their global businesses. The more different intergovernmental agreements there are, the harder it will be for global organisations to make sure they don’t drop the ball.

The larger European financial services organizations have already spent a lot of time and resources on understanding the impact of FATCA on their global businesses, but many smaller organizations are yet to fully mobilize on FATCA and have been waiting on more clarity before they commit. Preparing systems and data infrastructure for FATCA is going to be expensive and time consuming so many smaller organizations have been waiting to see what form the intergovernmental agreements between the EU 5, Switzerland and Japan take before they really start to implement their programmes."

For many asset managers the EU5 territories represents a relatively small proportion of their business.  They will be struggling with the ongoing uncertainty about who else may join an intergovernmental agreement and when and will be looking for territories to make their intentions clear sooner rather than later so they can start to prepare for FATCA in earnest.

The nature of the hedge fund industry is global and it’s unlikely that a Hedge Fund would operate exclusively within the EU5 and so they will still need to comply with full-fat FATCA. Hedge funds should however be looking at the details of the IAGs as a guide to what other territories may do and should be watching developments with Switzerland, Ireland and Luxembourg closely.

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