Category: Compliance

FATCA: What we’ve seen and what’s next


FATCANow that FATCA has begun to settle down and it’s more than six months after the first real effective date, I thought it would a good time to reflect on what we’ve seen so far and then look ahead to what’s next.

From the very beginning, FATCA’s impact has been greater on some fund companies than others. Most of our clients have not accepted foreign investors for a number of years. Recently, FATCA has caused a few more firms to make that same decision, leaving only a handful that still accept foreign assets – and they have only seen a trickle of new customers coming in the door this year.

Across our entire client base of over 14 million shareholder accounts, we’ve only seen 81 accounts established so far in 2015 by new foreign investors in scope of FATCA. The term “drop in the bucket” comes to mind. However, these are institutional investors who usually invest significant assets. So while the number of them may be small, they are not just like any other accounts, especially when withholding comes into play.

But is it that U.S. fund companies are turning away investors from around the world, or are foreign investors avoiding the U.S.?

It’s likely both. In this intense regulatory environment where resources are often stretched, many firms have decided foreign investors are not worth worrying about FATCA and the European Union’s regulatory alphabet soup of PRIIPs KID, the series of MIFIDs and especially AIFMD.

FATCA is seen as a real turn off for foreign investors not wanting to submit to the IRS’ registration process. For those who don’t register, there’s the prospect of 30% withholding. The withholding is the big “stick” that the IRS has used to incentivize foreign entities and governments to play ball on FATCA. Beginning in 2017, unregistered, undocumented foreign entities will not only have 30% withholding taken from all dividends, but gross proceeds as well. For institutional foreign investors looking to park a large amount of cash in U.S. funds, the idea of giving up 30% when they redeem their shares is an unpopular one.

Aside from the 81 new accounts, our clients also have about a thousand grandfathered accounts. These accounts must be documented by July 1, 2016 or face FATCA withholding. We’ll soon be approaching all of our clients to review their population of pre-existing accounts before soliciting W-8s from these foreign investors. Once they have completed the W-8s, they’ll be clear of FATCA withholding, but this is not a homogenous population of sophisticated offshore entities and foreign banks. This pre-existing population includes a wide range of investors, many who may struggle to correctly complete the new, much more complex W-8.

So while it has been fairly quiet on the FATCA front this year, we anticipate things will heat up and stay that way for the next 18 months as foreign investors come to grips with the new forms and the new withholding.

Adrian Lucas

Adrian Lucas

Adrian is currently a regulatory analyst in the Compliance department responsible for analyzing the operational implications of federal regulations on Boston Financial and its clients. Adrian began his career at Boston Financial as an intern in the legal department in 2011. In the time since, Adrian has held a joint-role in the legal department, while also supporting the Chief Compliance Officer. Adrian recently transitioned to support the CCO full-time with a focus on federal regulations such as FATCA. Adrian holds a Bachelor of Science in Accounting from the University of Massachusetts.


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