PA ANALYSIS: FATCA replaces RDR in wasting advisers' time
From PA ANALYSIS Jan 30 2012 BY: Gary Shepherd
, Editor
, Portfolio Adviser
The sole aim of FATCA (Foreign Account Tax Compliance Act) is to prevent US investors from using offshore entities to avoid paying their taxes, yet everyone across the UK investment spectrum needs to be ready for it.
As it stands, FATCA will take effect on the same day as RDR (1 January, 2013) and, barring any changes to its rules, it promises to impact everyone in the financial services chain from fund groups, to platforms, from discretionary to advisory wealth managers.
IFAs look as though they could be excluded, as long as they do not provide a custodial service for their clients. Still, that does not mean that they can be ignorant to the new rules and if they haven’t already, everyone needs to start analysing their distribution model as fund providers will simply stop distributing to wealth managers who are not compliant.
There is an element of scaremongering, but senior figures from large fund houses have been reportedly talking about rationalising down their IFA client base to just the larger firms.
One of the problems is that the specific information necessary to identify US customers outside the US is often beyond their reach. This is particularly the case where, for example, an insurance company invests in a US equity fund in the UK through a pooled nominee representing thousands of individual clients.
The IMA has also been looking into FATCA on behalf of its members, and has been lobbying for funds to be deemed compliant, i.e. excepted if they meet certain requirements and have their application approved by the IRS.
Regardless of the final rules IFAs and wealth managers should be asking fund groups now whether or not they have begun to implement the plan - the bigger the firm, the greater the impact and the greater the cost on infrastructure it needs to complaint.
Right now, final rules on FATCA remain out of reach though over the weekend it was reported that US officials have met with their EU counterparts in Paris to discuss the implications of FATCA, the potential breach of privacy laws et al.
Needless to say, firms need to prepare now no matter where they are in the financial services chain as this has already been passed into US law and it will happen.