Many investment managers are still coming to grips with the related operational, staffing, and budgetary requirements of the Foreign Account Tax Compliance Act (FATCA), according to a paper by SEI.
The initial Foreign Financial Institution (FFI) registration deadline is just one month away.
The paper, “As FATCA Deadlines Loom, What Managers Need to Know,” is based on a survey of C-level executives of investment management firms.
According to the results, many investment managers are unaware of critical deadlines and the associated costs to meet them.
More than a third of respondents say they have either not yet established a plan or have yet to decide how to proceed when it comes to planning for the completion of investor due diligence.
The majority of respondents (48 per cent) did not know the 25 April 2014 deadline by which FFIs are required to register for a registered Global Intermediary Identification Number (GIIN) with the Internal Revenue Service.
Over two-thirds (69 per cent) significantly underestimate the cost of each of the following FATCA-related expenses: legal, administration, FATCA Responsible Officer, and FATCA compliance.
“While the actual cost of FATCA compliance may be startling to some managers, the cost of non-compliance could be worse,” says June Oakes, director of regulatory solutions in SEI’s investment manager services division. “Organisations that take a strategic approach to complying with new regulations like FATCA can streamline the significant demands on resources, technology, and costs to their businesses, and can also use these tactics as a means to differentiate themselves.”
The paper encourages managers to plan ahead, providing a detailed FATCA timeline that explains the various deadlines for FFI agreement applications, due diligence procedures, withholdings, and reporting requirements. The report goes on to reveal some of the most important steps that investment managers should be taking to properly prepare for FATCA regulations and requirements:
1. Register as a foreign financial institution with the IRS by the 25 April 2014 deadline.
2. Assess in-house FATCA expertise and identify business partner needs.
3. Craft agreement(s) with service provider(s).
4. Develop a compliance plan geared to the 1 July 2014 deadline.
5. Review subscription documents.
“As they navigate the new regulatory landscape, investment managers should evaluate their existing teams to determine whether they have the expertise to manage these evolving requirements,” Oakes says. “The complexity and scale of FATCA is such that managers may wish to amend their existing fund administration contracts in order to benefit from additional systems and resources.”