The world is divided into those who know and understand the globalisation of FATCA and those who clearly don’t. In the same way that the industry adopted the meaningless acronym of FATCA in 2010, so 2016 will see its natural evolution into GATCA. For reference, the ‘A’ in both terms is supposed to mean ‘Act’. There is no such ‘Act’ as FATCA and equally there is no such ‘Act’ as GATCA.

Now that I’ve satisfied my inner pedant, while the acronyms may be technically meaningless, they are far from being so in the real world. I had a LinkedIn message the other day asking me why the US has still not signed up to CRS – the Common Reporting Standard. I, of course, responded that the US has no real need to join (i) because they have FATCA that does the same thing and (ii) because CRS is modelled on FATCA in the first place. This was quickly followed by the question – but surely the US has to sign up to CRS in order that non-US governments can get details of their resident with US bank accounts? Of course, my response was still no. The US’s intergovernmental agreements (IGAs) are mostly reciprocal, which means that all those other countries will get their data via FATCA and not CRS. Of course, the problem is that FATCA’s reciprocal IGAs are not a one-to-one map to the countries agreeing to adopt CRS, but I doubt anyone in the industry will be particularly surprised at the lack of joined up thinking that goes on (or not) at the regulatory level.

Now, when FATCA was (and still is) being implemented, the IRS has learned lessons from the previous lack of compliance to IRC Chapter 3, the QI regulations. Unlike the QI regulations, which called for voluntary adoption and only got around 6,500 FIs to join out of a possible 50,000, the FATCA regulations affect at least a million non-US firms, but the adoption is forced, hence why we’re at over 180,000 participating FFIs. But that’s not the only thing they learned. They also learned that you can’t just leave it to these firms to implement ‘compliance best practice’. The fact is that most non-US institutions have taken at best a minimal compliance approach and at worst a laissez-faire approach. The key is ‘training’ and ‘adequate controls’. Neither of these were in the QI regulations, so perhaps it’s not surprising that over 150 QIs had their contracts terminated. In FATCA, they took the control issue to another level by explicitly including the requirements, among other things, the need for training and adequate resource.

I’m going to opine on training in another blog, but as far as adequate resource is concerned, the whole thing starts with information. You have to know what you’re subject to. In FATCA, that will be FATCA itself, then probably IGAs, Statutes, Guidance and of course Partner Letters. And this is not just a fire-and-forget thing as most people seem to think. These regulations are evolving and you need to have a resource available not just to the compliance people but importantly (and again explicitly in FATCA) to anyone who comes into contact with clients.

When you start to see the evolution of FATCA into GATCA, the regulations of FATCA are replaced with common standards such as CRS. This is all voluntary adoption, but over 100 countries have so far committed. The IGAs are replaced by Automatic Exchange of Information Agreements (AEoI) and the Statutes that are needed to support FATCA are replaced with Competent Authority Agreements (CAAs) in GATCA. So, you can see the parallel. The risk is embedded and not always clear; that is that the OECD deliberately tried to simplify FATCA and one way in which they did this was to assume reliance on domestic regulation to provide most, if not all of the controls. The problem with this is that most domestic regulation was not written with this purpose in mind, so it is very ill-equipped to meet the need (no change there then). The result can easily be that as FATCA morphs into GATCA the best practice of high quality resources as the basis of good compliance could easily be lost.

For our part, we already have a resource library that we call the GATCA Resource Library. Given that we provide both training and consulting services to the industry on a global level, we need to have all the information at our finger tips. Our GATCA Resource Library contains over 580 documents so far that are all structured in folders, and are easily searchable and viewable both at a computer and on the move via our iOS app. It was so useful that we’ve included both FATCA and the OECD CRS regulations, as well as a whole range of similar tax regulations and reports which are currently influencing tax policy in various parts of the world. Pretty much every compliance officer we’ve spoken to has said something like: “Wow, could we have that? It’s a way to tick a compliance box at one stroke, and so useful too”. So, that’s what we’ve done. You can see what the library looks like at www.gatca.info and if you want to subscribe, it’s just a click away.

Of course, that click doesn’t solve all the problems in an evolutionary step from FATCA to GATCA that even Charles Darwin would have called ‘significant’. But my motto has always been that the basis of good business practice is to start with knowledge and awareness. I mentioned in a recent conference presentation that FATCA is just a one-to-many regulation. GATCA is many-to-many with, at current rates, over 10,000 permutations of automatic data transfer. It would be nice at this stage to be able to evidence any success from FATCA, but the US has not issued any statistical data so far. They have issued data on their OVDP (Overseas Voluntary Disclosure Program) but this is NOT FATCA. An outcome from FATCA would be the IRS taking data from FFIs, reconciling it to tax returns, then penalising those who had not reported those assets, as well as getting them to pay the unpaid tax on those assets. It will be interesting to see if this type of regulatory performance data does eventually come out of or is discussed by IRPAC (Information Reporting Advisory Council).

So, we end up with GATCA implementing a global system based on the US system which has yet to go through a complete cycle and cannot therefore deliver any performance information as to whether the system actually works and/or actually delivers the expected benefit.

Image Credit: Kenneth Lu