Tasking For Fatca
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Maybe this will jinx it, but Fatca (the Foreign Account Tax Compliance Act) is shaping up to be one of the few pieces of major US financial industry regulatory legislation that won't end up being gutted or significantly eroded before it actually gets a chance to take effect.
Fatca is part of the Hire Act of 2010 (Hiring Incentives to Restore Employment), also known as the Tax Cut Act of 2010, sponsored by US Senators Schumer (D-NY), Hatch (R-Utah) and Lincoln (D-Ark.). The regulation concerns means to prevent tax evasion by US citizens with foreign accounts and foreign firms operating in the US. The US Internal Revenue Service, which will be registering non-US financial firms for compliance with Fatca, did not publish draft regulations before December 31, as was expected. Fatca is set to take effect on January 1, 2013, and apply to transactions on and after that date. Also, firms must register by June 30, 2013 to avoid penalties when withholding starts in 2014.
Even with a slight delay (so far) in IRS code for the regulation, the law is unlikely to be derailed by political and election season considerations – as it might have if it had taken effect this month or at any point before November 6. Then, there may have been pressure to postpone it or change it through how Fatca was or was not implemented, but because the effective date is just after the election, that has been avoided, it appears.
So what does all this mean for the reference data space? In short, there will be a lot of work to do to prepare for Fatca compliance, including development or purchase of new systems. Corporate actions processing, in particular, is a function that will require systems changes due to Fatca compliance. The extension of the cost-basis accounting method to corporate actions now required by the IRS is going hand in hand with Fatca to increase the complexity of corporate actions processing, particularly in handling information, assessments, analysis and controls, as Deborah Culhane, chief operating officer of Fidelity ActionsXchange, relates.
There are still few service providers out there with offerings to address this growing concern, as Culhane and colleagues from other firms are saying. Tax information services reporting company GlobeTax has been making clients and the industry aware of what the implications of Fatca are for corporate actions processing. Such educational efforts are happening, according to Ian Davidson, EMEA product head, electronic markets, Citi, but solutions are not yet apparent, he says.
Even though Fatca taking effect may still seem like a long way off, there will be a lot to watch for in the meantime, to see how the industry and its providers will develop ways to handle the processing complexities created by the regulation.
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