Beth Mueller, US Bancorp

Automated solution to help relieve FATCA burden

Download the special report US Hedge Fund & Private Equity Services 2013

Next July marks the introduction of the Foreign Account Tax Compliance Act (FATCA). To meet the demands of this far-reaching legislation, US Bancorp Fund Services, LLC is working proactively to implement innovative technology resources and modifications to internal procedures to streamline compliance and reporting processes and minimise the burden placed on managers.

“For fund administrators, and the industry as a whole, the biggest challenge is the sheer volume of information on individual investors that will need to be managed. To overcome this issue, we must address the need for intuitive technology solutions to promote the automated processing of investor activity in the alternative fund space,” explains Beth Mueller, Managing Director, Investor Services in US Bancorp’s Alternative Investment Solutions group.

US Bancorp Fund Services has implemented an automated solution called Finomial to address investor onboarding processing and ongoing requirements surrounding FATCA, as well as provide even greater transparency and data security.

“Most of the investments made in hedge funds are processed through a hard copy subscription document that the investor fills out, signs and scans or faxes back to the administrator. Everything is in hard copy, even their Form W-8 or W-9 tax forms. Finomial will allow the investor subscription process to be fully electronic,” says Mueller.

Finomial is set to go live in preparation for the 1st January 2014 implementation of FATCA as Foreign Financial Institutions (as most offshore hedge funds will be classified), will need to register with the IRS.

Finomial is designed to remove the burden of FATCA by illustrating fund compliance with FATCA. By having full transparency, managers can see where every investor in their fund is located, what their tax status is, and where they fit under FATCA’s 42 different classifications. Furthermore, because all of the data is stored electronically, validations can be easily performed by cross-referencing different documentation.

“The investor’s tax forms and subscription documents will be validated at the time of their receipt to ensure everything has been completed properly to comply with IRS standards,” says Mueller.

“Finomial helps identify a red flag. For example, if an investor reports on their tax form that they live in one jurisdiction, but the subscription document says they live somewhere else, Finomial will notify us and the investment manager when the discrepancy arises.”

Should there be any discrepancies, this early warning allows the manager to seek a resolution and stay on top of income withholding requirements. This system is critical in fulfilling the key requirements of FATCA, to ensure US investors no longer slip through the tax loop by investing in offshore vehicles. If a manager is missing data on any investor and this inaccuracy leads to a violation of FATCA requirements, US or otherwise, they may be subject to the withholding tax.

“While it is important to capture the necessary information on all investors, FATCA requires more than just a data collection exercise. You need to analyse the information and put procedures in place to identify red flags and take the relevant steps as needed,” stresses Mueller. “Having the proper technology in place, like Finomial, is essential to achieving compliance with FATCA requirements and maximising operational efficiencies in the process.

Further reading


Download the special report US Hedge Fund & Private Equity Services 2013


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