Study: GPs unprepared for FATCA

A portion of GPs are relying too heavily on service providers for FATCA compliance and may miss an April registration deadline, according to fresh research.

A significant percentage of GPs may not be ready to meet certain deadlines and requirements set forth by the US Foreign Accounts Tax Compliance Act (FATCA), reveals a survey from software provider SEI.

The survey of 58 fund managers subject to the law (most based in the US) found that one third haven’t fully planned out how they will screen investors for FATCA compliance purposes. An overwhelming majority (89 percent) expect outside administrators to collect the required investor information on their behalf, which in some instances, may be a false assumption.

“I have been meeting with clients to discuss due diligence procedures for documenting accounts, and we’ve often been asked, in essence, ‘aren’t you going to handle that for us?’” said June Oakes, a regulations-focused director in SEI’s investment manager services division.

Moreover nearly half of respondents said they were unaware of an April 25 deadline to register with the Internal Revenue Service for FATCA reporting purposes. The research also revealed that most GPs expect FATCA costs to be paid by investors: three quarters of fund advisors expect the fund to pay for FATCA legal advice and documentation.

FATCA, designed to clamp down on US citizens stashing money away in foreign accounts to avoid taxes, requires any private fund advisors with US clients to supply US tax authorities with information on these accounts. Failure to comply with the law could result in a 30 percent withholding tax on certain US-connected payments.

“The reality is that the FRO (FATCA responsible officer) is ultimately responsible for FATCA compliance, and that person must proactively reach out to service providers to understand their capabilities around FATCA and how it fits into their requirements,” said Oakes.