Responding to the proposed FATCA regulations issued yesterday by the US Internal Revenue Services (IRS), Adrian Harkin, global FATCA leader at KPMG, commented:
“Reactions to yesterday’s draft FATCA papers will be mixed.
“On the one hand, the IRS has done a good job in listening to the financial services industry and has tightened the scope of FATCA, making the proposals more proportionate. We estimate that these measures could reduce the implementation cost of FATCA by more than $10bn.
“On the other hand, FATCA will still cost the industry much more than it is likely to raise for the IRS. Plus, the introduction of bilateral FATCA agreements between countries will add more complexity into the mix for the biggest global financial institutions.
“The bottom line is FATCA continues to present a major challenge to the industry at a difficult time and any efforts to further reduce its impact would be welcome.”
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Notes to editors:
How the new rules will reduce FATCA costs by $10bn? The draft FATCA regulations will reduce the cost to the financial services industry in four broad ways:
1. Draft FATCA regulations introduce more ‘deemed compliant’ categories.
The draft rules introduce a wider set of ‘deemed-compliant’ categories, both introducing new ‘deemed-compliant’ categories and lowering the threshold to gain the certification. Specifically, deemed compliant exemptions have been granted to local banks, smaller banks and collective investment vehicles. Based on KPMG’s in-house FATCA model, we estimate that around 1,200 financial institutions will be ‘carved-out’ and made eligible for deemed compliant, significantly lowering their compliance burden, and saving $3.5bn.
2. Draft FATCA regulations move more financial products out of scope.
The rules have narrowed the definition of ‘financial account’, and are largely silent on investment banking and funds products. We estimate that these measures will save the industry a minimum of $1bn.
3. Remediation requirements scaled back.
The IRS has clearly listened to the industry concerns about the cost of remediation and the private banking distinction for the most part has been dropped. The diligent review remediation threshold has been raised from $500,000 to $1,000,000 in line with AML thresholds today. In addition, only certain cash value policies and annuities of more than $250,000 will be remediated, which essentially carves out much of the insurance industry from this requirement. We estimate that these measures will save the industry $4bn+.
4. Customer on-boarding requirements scaled back.
The draft rules also make significant changes to the new customer documentation requirements. The draft rules specify that existing KYC/AML processes should be used to identify US indicia. Therefore financial institutions are less likely to require wholesale changes to the customer on-boarding processes to become FATCA compliant. We estimate that the relaxation of these rules will save the industry about $1.5bn.
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Monica Fiumara, Senior PR Manager, KPMG
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KPMG Press Office: 020 7694 8773
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