A Thomson Reuters survey has found that while most firms are aware of the decisions that need to be taken around FATCA, minimal regulatory guidance, lack of budgetary allocation and partial board awareness threaten to stretch already saturated risk and compliance functions in the financial services sector. Of nearly 200 compliance, risk, audit and legal practitioners surveyed across Europe, the Americas, Australia, Asia, Africa and the Middle East almost 60% of them admitted there was no separate or specific budget allocated to resource the preparation for FATCA.
Under FATCA, which comes into effect on January 1 2013, all financial institutions US-domestic and foreign must classify account holders as either US or non-US based and foreign financial institutions (FFIs) are expected to identify US account holders and disclose their balances, receipts, and withdrawals to the US Internal Revenue Service (IRS).
Key findings from the Thomson Reuters Survey include:- Over half of the practitioners surveyed were unsure of the impact that the new FATCA requirements would have on their firm- 43% of firms are still unsure of their strategic approach for FATCA and for firms with a US legal entity in the group 51% were unsure of what approach to take in relation to US customers- Over a third of respondents stated that FATCA had only been discussed once or never at all at board level- More than 50% of respondents believed that overall responsibility for ongoing compliance with FATCA fell to the compliance function- Overall, 59% of respondents are expecting the new requirements to have some impact on their bottom line however, for almost 60% of firms, no separate or specific budget has been allocated to resource the preparation for FATCA
The survey has shown a significant divide in the extent and state of preparations being undertaken for the new FATCA rules, said Mark Schlageter, managing director, Governance, Risk and Compliance, Thomson Reuters. While this has been driven predominantly by continued lack of clarity about what the final practical requirements will entail financial firms must ensure they fully understand the detailed impact that the final FATCA requirements will have on their businesses.
Ongoing uncertainty is a key theme in the survey given the lack of clarity regarding the FATCA regulations, which have yet to be finalized by the IRS, and the increasingly tight timescale for compliance that will be a challenge for all firms. Indeed 41% stated that their biggest challenge in complying with FATCA was the lack of available regulatory guidance from the IRS.
The survey indicated there will be numerous practical considerations that firms will have to take on board as result of FATCA such as the need to redevelop or redesign operations, policies and procedures, IT and other control systems, as well as the more significant strategic decisions which need to be taken such as which function will take the lead within the firm.
Nearly two thirds (64%) of firms are managing the implementation of FATCA as part of business as usual or as a specific project within existing risk and control functions. According to the survey this is a cause of potential concern given the current overstretch already on risk and compliance functions in the financial services sector.
Overall, 59% of respondents are expecting the new requirements to have some impact on their bottom line recognition of the potentially large costs involved for the compliance, legal, IT and tax functions of identifying US account holders (on a one-off and then ongoing basis), updating systems and controls and collecting and maintaining potentially significant additional evidence. Despite this however almost 60% of firms have no separate or specific budget allocated to resource the preparation for FATCA.
Nearly half of the firms surveyed appear to have strong board engagement through regular discussion on FATCA or it having been discussed and responsibility allocated. However for a third of firms the situation is quite different. Worryingly a fifth of respondents stated that FATCA had never been raised and discussed at board level.
(JDC)