FATCA for in-house lawyers

factaSusan Grace, head of business transformation, group legal with Lloyds Banking Group, discusses the many challenges of the UK implementation of FATCA.

What changes have been necessary to make your business FATCA compliant?

This has had a huge impact on IT due to the need to ensure all systems can capture and process the information required to comply with FATCA. Fortunately, due to the introduction of the IGAs which have been adopted by the jurisdictions we operate in, we will largely report to local tax authorities. This approach has meant the changes in customer terms & conditions, the need to get customer consent to disclose to the Internal Revenue Service (IRS), is not as nearly extensive as originally contemplated by the FATCA Regulations. In addition to this we have obviously had to change processes, role out extensive training, classify all products and entities. FATCA has had a far reaching impact across the entire Group.

How great a burden did it place on your team? What have been the principal challenges?

The greatest challenge for legal resulted from a changing regulatory landscape. Initially FATCA could not be implemented without customer consent as no terms & conditions encompassed in data privacy notices provided for consent to disclose information to the IRS. It was thought at one stage that we’d have to get consent from every customer whose data we needed to report, but with the IGAs that turned out not to be the case. So the legal cost and work associated with terms & conditions has been less than we originally thought.

Given the impact of FATCA across our Group and its complexity, we set up a virtual legal team with lawyers from each division supporting the programme. FATCA needed the expertise of a broad spectrum of lawyers to assist in assessing its scope on products, entities, changes to terms and conditions etc. This team has been key in supporting the programme, in achieving consistency, horizon spotting and managing legal costs. Legal, tax and risk have worked very closely together to ensure the implementation meets the Group’s requirements.

Obviously, a big challenge has been looking at the classification of the products and at whether they are in scope, and then looking at third parties changing terms and conditions and, in countries like Hong Kong, getting the customer terms and conditions changed. There has been a lot of work to do—particularly on the more sophisticated products.

We have also supported the Programme with its lobbying eg data privacy issues, product in scope, and helped to ensure that certain products such as ISAs which were originally in scope, were de-scoped. A senior executive was part of a UK banks collective which explained the implications on banks to the IRS and why we all needed more time to implement. Many of the collective’s inputs were taken on board. However changes resulted in delays in issuing the regulations and guidance as the IRS redrafted legislation. There were also issues with registering entities on the IRS online portal due to the sheer volume of registries—staff from the programme were getting up at all sorts of odd hours to register the entities during the quiet time.

During this time there have also been other tax exchange initiatives. The UK has agreed to reciprocal exchanges of information with the Crown Dependencies. The OECD is looking to do the same with the introduction of the Common Reporting Standards. But the challenge is that the detail of all these tax exchange programmes is not the same. They all have different requirements as to who/what is in scope and on what they want reported. This includes information on tax residency, nationality, products, de minimis amounts (under which customers are not reported) and so on, so you have to have a lot of variations in your IT systems to cope with the differences.

How do you see the future of global information sharing?

It will increase. There is growing movement towards every country wanting to ensure people are paying the right amount of tax where they are tax resident. I have been to many presentations on this project in the last three years, and it has been clear that the tax authorities are really stepping up resource in this area, including in technology, to know more about its residents, and increasing penalties for non-disclosure.

One of the legal challenges is that the increase on information exchange is happening at the same time as increasing concerns on cyber-security and changes in the EU with the draft Data Protection Regulations. In current form, the draft Regulation increases the transparency and security obligations on both data controllers and data processors. They also give individuals greater rights in respect of access to and correction of their data. It is not yet fully clear what impact this will have with all the tax authorities and the changes they may need to make to ensure they remain compliant, so there is a level of concern about what has been created from a data privacy perspective.

Interviewed by Dave Thorley.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.



Filed Under: Enforcement

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