This is going to be a very quick blog post (compared to our others), but we wanted to clear up some confusion we’ve been noticing in the industry. More and more, we’re seeing new QI clients that have already obtained a GIIN to comply with their FATCA obligations. So far, so good. But they then go on to register their FATCA classification as ‘participating FFI’ in the FATCA registration system. This is an understandable choice, but in most cases, it’s not correct. So, let’s clear things up.

IGAs

When FATCA first came into force in 2010, many jurisdictions didn’t have an IGA with the United States. They just weren’t that common. Between 2010 and 2014 they became more common, mainly because a lot of jurisdictions found that in order to comply with FATCA their financial institutions would need to break domestic data protection regulations that protected the confidentiality of their clients and account holders. The IGAs were a convenient workaround, which allows financial institutions to report accounts to their domestic tax administrations and so not breach domestic laws. It was then left to the tax administrations to send that data outside of the jurisdiction and to the US.

The Foreign Financial Institution Agreement

Now the base FATCA operating model in 2010 was that, if a financial institution wanted to comply, it would have to ‘sign up’ to the Foreign Financial Institution (FFA) Agreement. This agreement ran parallel to the QI agreement, so financial institutions who were members of both would be classified as ‘participating FFIs’ or P-FFIs for short. The institutions that didn’t sign up were classified as ‘non-participating or NP-FFIs’

As more and more jurisdictions engaged in the IGAs, the terminology changed. Financial institutions that were resistant in IGA jurisdictions wouldn’t be Participating FFIs anymore – they would be described as ‘Reporting FFIs’ under either the Model 1 or the Model 2 IGA associated with their country of residence. The FATCA language of today is that financial institutions will either be a ‘Reporting Model 1 IGA FFI’ or a ‘Reporting Model 2 IGA FFI’. Although Model 2 IGA jurisdictions can still have ‘Participating FFI’ as a status.

To be clear, the concept of Participating FFIs hasn’t gone away, but today it only refers to FFIs who are resident in jurisdictions that still have no IGA in place.

What’s The Issue?

The problem with this whole things is that an FFI that was a participating FFI when it originally got its GIIN would have to change its FATCA classification as soon as its jurisdiction signed an IGA. That means going back to the FATCA portal and updating your FATCA status by editing your application to reflect the correct classification.

So now we’re seeing QIs of all types, new and old, who got their GIINs early on and may not even know that their classification might not be correct. The most recent change that highlighted this was when Argentina signed an IGA with the United States. All financial institutions in Argentina were previously either participating or non-participating because there was no IGA. When that IGA was signed, they all had to change their FATCA status to Reporting Model 1 IGA FFI.

The lesson in all of this is simple. If you got your GIIN between 2010 and 2014, you need to check that your FATCA status is still correct. If you need help with that, give us a call, and one of our team will be happy to help.