Interactive Data Launches FATCA Instrument Identifier

Interactive Data has launched a new offering to help meet the requirements for the U.S. Foreign Account Tax Compliance Act (FATCA) by identifying which instruments are subject to withholding.

By leveraging Interactive Data’s global securities database, the offering will provide firms with instrument-level details, identifying which ones are subject to FATCA withholding and classifying the instruments as fully liable, partially liable or exempt. The instruments in focus are debt-related securities, as equities are considered within the scope of the tax, but debt instruments can have different statuses.

“Although firms may have a handle on some of the changes required to client on-boarding systems to comply with FATCA, the instrument data side remains a significant challenge for the majority of firms. As a result, any service that can take some of the pain away from firms in terms of flagging this instrument data is likely to be welcomed,” says Virginie O’Shea, senior analyst at Aite Group.

While certain instruments are grandfathered in as exempt, current Internal Revenue Service (IRS) regulations say that the exemption may be lost as the result of a “material modification,” which leaves some room for interpretation as to what qualifies as a material change. The IRS has provided some clarity on this, but Marty Williams, vice president of reference data product development at Interactive Data, says the industry is seeking more guidance. Interactive Data is currently working toward incorporating an analysis of material modifications into this offering in order to update the instrument’s withholding status.

“We think the value in this is to be able to put at clients’ fingertips the acknowledgement as to whether or not the given securities that they hold should be considered FATCA eligible or not, or grandfathered or not. So we think that is an operational benefit that should result in both cost and time savings,” says Hubert Holmes, managing director of reference data for Interactive Data.

The catalyst behind the launch came from client demand, says Williams. In January, Interactive Data helped launch an industry advisory group on FATCA in order to come up with a clearer interpretation of the IRS rules and how to comply with these requirements. After a number of clients asked for this instrument identifier, Interactive Data came out with this offering.

“The regulatory area is generally an area we’re spending more time on. So we see this reference data offering as being increasingly important to our clients’ compliance and reporting processes,” says Holmes.