FATCA-Investment Fund Service Providers
|June 23, 2012||Posted by admin under FATCA, Fund Administration, Investment funds, United States|
FATCA will affect both U.S. and non-U.S. domiciled investment products, and, in many cases, asset managers will be looking to have FATCA preparation and ongoing compliance activities provided by third party transfer agents, fund administrators, custodians, back office accounting providers, distributors, and other agents.
A fund’s classification as a USWA, FFI, or Non-Financial Foreign Entity (“NFFE”) will drive the FATCA compliance tasks for that fund and the implementation timing of those requirements. However, in many cases the actions necessary to comply will be similar in nature across the classification categories (with the exception of NFFEs), and will include the following high level requirements:
- Enhancement of client or investor on-boarding processes;
- Reviews and remediation of client or investor account data;
- Implementation of withholding processes for non-compliant accounts; and
- Expanded reporting to the IRS.
As mutual funds, hedge funds, private equity funds and institutional investment management firms begin to identify the impacts of FATCA on their organizations, the focus will promptly shift to their third party service providers for supporting many of the action items outlined above.
Many service providers expect to be able to support the compliance requirements of their clients as a value added service. Many service providers have begun work to address the expected needs of their clients.
FATCA is major regulatory change for the asset management industry. Moreover, the deadlines are quickly approaching. While many governments are now signaling their support for FATCA, prudent planning should assume that deadlines are unlikely to move favorably. Thus, communication with clients has become critically important. Some specific communication topics and near term action items are outlined below:
- Distribute initial communications to clients to raise awareness of FATCA and various deadlines;
- Begin the education process on the impacts this may have on client business and support that is or will be available;
- Perform an internal FATCA readiness assessment that includes performing a gap analysis of current KYC/AML or new investor onboarding processes to identify gaps between current operations and proposed FATCA regulations or various jurisdictional approaches being developed, and create a plan for implementing process and system enhancements required to comply with FATCA;
- Service providers which hold client data should be able to assess client and investor classifications within existing shareholder servicing or investor data management systems to determine the account classification framework’s ability to support FATCA taxonomy classifications, and outline any remediation or external data analysis activities that the client will need perform to support FATCA classification of investor accounts;
- Service providers which hold client data should also be able to identify how and whether the organization can perform electronic searches for U.S indicia within the existing investor data maintained on its systems;
- Review current withholding system capabilities (if applicable) and the solutions for consolidating, reconciling and reporting on withholding information, and determining a plan for addressing any gaps noted prior to the initial withholding and reporting periods beginning in 2014;
- Communicate a compliance work plan to clients to indicate the systematic and procedural enhancements that will be made, and begin discussions on any adjustments to commercial terms or additional service offerings that you may provide to support their compliance process; and
- Provide relevant information on FATCA preparations to clients and identify a framework for managing the status of each client’s progress towards compliance.
FATCA preparation and compliance can represent a multi-year process for many global fund managers. It is apparent that many fund managers will rely on their service providers, and so it is important for these service providers to begin preparation activities and communications to support the needs of their clients.