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Capco FATCA paper highlights key steps for financial firms to achieve compliance

Financial services consultancy details critical success factors and key steps for FATCA implementation.

Capco, the global business and technology consultancy dedicated solely to the financial services industry, today announced the availability of a new paper identifying the critical success factors and key steps needed for firms to achieve Foreign Account Tax Compliance Act (FATCA) readiness. The paper, ‘Impending and imperative, FATCA demands immediate action’, provides financial institutions with a practical guide to understanding how FATCA will impact organisations, how prepared or exposed they are to the requirements of the act and an understanding of what needs to be done operationally to comply with FATCA before it takes effect in June 2013.

FATCA is an extension of existing U.S. legislation that aims to discourage tax abuses. In order to be compliant, foreign financial institutions must enter into an agreement with the U.S. Internal Revenue Service (IRS), obliging them to perform due diligence procedures to determine any U.S. accounts and report specific information on the account holders, as well as information on account balances and account activity. This means banks will need to obtain more detailed information from their account holders. Where account holders fail to provide the information, the institutions will be forced to impose a 30% withholding tax on any payment received to those accounts.

In its paper, Capco highlights ten issues financial firms should keep front-of-mind when considering the implications of FATCA:

1. Timing
FATCA remains a timing challenge (not just in terms of key dates but pace of preparation and identification of major milestones).

2. Scope
FATCA is not yet fully defined – the complete legislation is not available in one single statement or announcement – it keeps evolving and needs to be monitored closely.

3. Cross-business impact
FATCA will have ‘front-to-back’ impact throughout financial institutions – from customer awareness and information management, through permissions, data quality and deep operational/systems readiness.

4. Cost
FATCA compliance will cost money – it will bring systems and operational change that will have investment implications; therefore, it will be important to take the right actions at the right time to achieve cost-effective compliance.

5. Communication
FATCA will create customer communication requirements – somebody will have to explain data sharing and privacy issues to customers.

6. Data quality
FATCA will have major implications for customer data quality and availability (particularly ‘older’ clients of institutions, who may have been customers when data requirements and transparency were less rigorous or comprehensive).

7. Opportunity
FATCA is not just a challenge; it is an opportunity to improve customer data quality and availability, to open new dialogue with customers, to transform compliance in this key area from a ‘box check’ into a source of operational improvement.

8. Imperative
FATCA is a ‘must fix’ not a ‘maybe fix.’

9. Impending
FATCA is at a critical stage – it will happen and financial institutions need to have a clear picture of their readiness or lack of readiness.

10. Immediate
The time to act is now.

Peter Lewis, Capco Partner, said: “FATCA implementation costs could be substantial without careful planning and it has been estimated by some industry bodies* that large banks could spend around $250 million per institution. But the price of non-compliance will be even greater. The majority of financial institutions worldwide will be affected, unless they are prepared to quit U.S. business. With this paper we are looking to help financial institutions understand the implications of FATCA but also to recognise the substantial opportunity it offers in terms of improved operations and enhanced customer experience.”