Compliance professionals around the world say they are not ready to handle the demanding requirements of the Foreign Account Tax Compliance Act, according to a new survey.

FATCA was included as part of the HIRE Act of 2010 and requires foreign financial institutions to report on the holdings of U.S. citizens and entities to the Internal Revenue Service or face stiff penalties. The requirements have stirred controversy, with many banks complaining that disclosing such information would violate their country’s bank secrecy laws, and expatriates and dual citizens concerned that they will have to pay taxes to the IRS on money they have earned abroad.

The survey, by Thomson Reuters, found that while most firms seem to be aware of the decisions that need to be taken around FATCA, the minimal amount of regulatory guidance issued so far, along with the lack of budgetary allocation and partial board awareness threaten to stretch the already oversaturated risk and compliance functions in the financial services sector.

Some of the requirements of FATCA begin to take effect on Jan. 1, 2013, although the IRS and the Treasury Department are phasing in other requirements, as well as negotiating with foreign governments. The proposed regulations that were issued in February have not yet been finalized.

FATCA is designed to improve tax compliance for financial assets held by U.S. persons in bank accounts and other vehicles outside the U.S. Under FATCA, all financial institutions—both domestic and foreign—must classify account holders as either U.S. or non-U.S. based. Foreign financial institutions are expected to identify U.S. account holders and disclose their balances, receipts, and withdrawals to the IRS.

The Thomson Reuters survey covered nearly 200 compliance, risk, audit and legal practitioners from firms across Europe, the Americas, Australasia, Asia, Africa and the Middle East. The survey found that more than half of the practitioners surveyed were unsure of the impact that the new FATCA requirements would have on their firm. Forty-three percent of the firms surveyed are still unsure of their strategic approach for FATCA. For firms with a U.S. legal entity in the group, 51 percent were unsure of what approach to take in relation to U.S. customers.

Over a third of the survey respondents stated that FATCA had only been discussed once or never at all at board level. More than 50 percent of the respondents believed that overall responsibility for ongoing compliance with FATCA fell to the compliance function. Overall, 59 percent of the survey respondents expect the new requirements to have some impact on their bottom line. However, for nearly 60 percent of the firms surveyed, 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 of governance, risk and compliance at 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 amongst firms would appear to be due to a lack of clarity regarding the final 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. Based on the survey results, despite FATCA rules having not yet been finalized, nearly half the respondents said they had not only heard of FATCA but were fully aware of all the implications.

The other half of respondents, however, confirmed that they had heard of FATCA, but perhaps more realistically stated that they were, as yet, unsure of the impact it would have on their firm. Indeed 41 percent said 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.

While regulatory requirements continue to grow, compliance teams are showing signs of resource constraints limiting their ability to perform vital compliance functions. Sixty-four percent of the firms surveyed 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.

Despite the levels of uncertainty evident in the responses regarding strategic approach, firms appear to be much more confident about the likely bottom line impact of FATCA. Overall, 59 percent of the survey respondents expect the new requirements to have some impact on their bottom line, recognizing the potentially large costs involved for the compliance, legal, IT and tax functions of identifying U.S. account holders (on a one-off and then ongoing basis), updating systems and controls and collecting and maintaining potentially significant additional evidence.

Despite this finding, however, nearly 60 percent of the firms polled have no separate or specific budget allocated to resource the preparation for FATCA. 

The expectation of regulators and investors is that strong corporate governance and understanding of compliance issues is conveyed by senior management and the board. 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 the firms surveyed, the situation is quite different. A fifth of the survey respondents stated that FATCA had never been raised and discussed at board level.

A full copy of the report is available at

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