The Secret to FATCA Compliance– It’s All About Unlocking the Data

Scott PriceGuest Contributor: Scott Price, Regional Director – Americas, Custom House Global Fund Services

The IRS portal for FATCA registration opened on January 1, 2014, requiring investment managers to register their Investment Fund as a Foreign Financial Institutions (FFI). The Foreign Account Tax Compliance Act (FATCA) is a regulation enacted by the U.S. federal government to stem tax evasion by US citizens and residents using offshore accounts. Under FATCA, the government will obtain information to foster more transparency into offshore accounts. This requires the fund managers to report certain information with respect to each U.S. reportable account in their investor pool. Despite the looming deadlines this year, fund managers can easily become compliant by outsourcing and working with their fund administrator to obtain and automate this information.

The key for many managers is unlocking the power of the investor data, so it can be reported efficiently and accurately to the IRS. Traditionally, the processing of subscription documents from an investor into a fund has been a manual process and the investor specific details has been locked in PDFs, email attachments and hard copies, specific with respect to anti-money laundering (AML) information on underlying investors

Meanwhile, the subscriptions forms are nearly all received by fax. That meant that in the past, we could not unlock the data. The majority of funds and administrators are now going through a manual process of pulling out information such as name, address, tax identification, from existing documents. It’s literally a case of going back to square one, looking at the original subscription documents, and creating a database of relevant information on investors and entities in the investor pool in order for FATCA reporting to be accomplished.

This process of unlocking this data from investor documents, requires entering it into a database, conducting due diligence, and then stepping back to see where the gaps are and when required remediation is necessary in order to obtain more information from investors.

Outsource or Build?

As a fund administrator, we are in the best position to ask the questions because we already obtaining AML information and we understand the investor demographics, and more importantly, where the subscription monies originated. We are already collecting a vast amount of information on our investor pool for clients — with FATCA there is only a few more data points that we requesting.

There is not a massive gap between current AML requirements and the new specific requirements of FATCA, in order to further understand the demographic of investors. Traditionally managers don’t have the type of information on hand, and they would normally always defer these types of requests to their fund administrator. It’s not so much a build vs. buy question; so much as your fund admin is already doing this through their Investor Services functionality. It’s relatively easy to ask for the few more data points during the on boarding of an investor and therefore become compliant.

We  use technology to flag expired data sets, and report these gaps in a much more efficient manner. Also it’s much easier for all of this data to be captured in one system as oppose to multiple systems.  Technology from a database perspective is a big play in becoming FATCA compliant, simple because it can be automated, but traditionally, all of this information would have been tracked manually. So fund administrators have built technology and reengineered their operational workflow to capture FATCA relevant information.


Even with technology and automation of data, it’s a big year for investment managers and they need to be stepping up. The IRS portal is now open for registration and IRS registration deadline for inclusion on 1st GIIN list is the 25 April 2014, with several deadlines rolling out over the summer. Managers will need to be fully compliant by this time next year.

This time last year was too far out for client to take it seriously. Now, fund managers have to meet compliance within the first quarter of 2014. And not being compliant is the worst thing they can do. It makes sense for fund managers to outsource than try to do this in-house.

To learn more on FATCA compliance attend FTF’s FATCA Breakfast on March 6, 2014. Discussions will focus on the following topics:

Who Should Lead the FATCA Operations Challenge?
New Deadlines, New Withholding Rules
Surviving FATCA Documentation 

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One Response to The Secret to FATCA Compliance– It’s All About Unlocking the Data

  1. allanmadan2014 says:

    FATCA is ridiculous in the first place. The United States should be adopting a residence-based tax system as opposed to a citizenship based system like 99 percent of the rest of the world. This legislation will only further impede on the national sovereignty of other nations and further fuel American resentment. FATCA has potential implications extending beyond ‘American persons’, this is an extremely expensive compliance program to enforce and customers of these banking institutions will most likely have to bear the weight of this in increase banking fees.Offshore banking is a serious issue, but the American governments need to target the real culprits, increase corporate taxation and those that have complex methods to divert income reporting.
    There are many Americans in Canada who have no ties other then its their place of birth. Is it really fair to tax them for economic productivity that was not generated in the United States? absolutely medieval thinking from the United States government.

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