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Update on information exchange by Ian Bancroft, Managing Director

28.07.14

After some delays and with no small measure of confusion and complication for the entire financial services community, FATCA (the Foreign Accounts Tax Compliance Act) has finally arrived.  Although FATCA was originally a US initiative, the UK introduced a comparable regime for the British territories, which follows a very similar path to the US regime, even to the extent of referring in the UK regulations to 'checking accounts', a spelling previously unfamiliar to banking on this side of the Atlantic!  Consequently, in relation to our US and UK clients, the FATCA regime commenced on 1 July. 

Under both the USA and UK FATCAs, financial institutions (be they banks, trust companies, fund administrators, investment managers or insurance companies) are obliged to report to the relevant authorities, in our case through the agency of the IOM Government, information regarding all manner of clients - individuals, companies, foundations and trusts.

The FATCA system for the automatic exchange of information is thus as extension of the EU Savings Directive reporting regime, which has been in place for many years, which relates to individual bank account holders only, and with which UK clients with offshore bank accounts will be familiar.

The US and UK FATCAs are just the start on a journey towards fuller transparency regarding cross-border business.  From 2016, the Common Reporting Standard, or CRS, will commence, with around 60 nation states slated for the first wave of implementation.  The CRS is very similar in its approach to the original US measure.  Consequently, within two years we anticipate that globally, most cross-border financial activity will be subjected to home-country reporting.

Whilst we would of course much prefer that properly conducted and entirely legitimate business should remain confidential between the parties, public opinion has shifted significantly, and the world is fast moving towards a more transparent environment.

There is no doubt that these measures are burdensome, and will add to costs.  However, we do not expect that customers will be unduly troubled by them: we expect the affairs of all our clients to be properly structured such that the eventual reporting of international planning arrangements to home taxation authorities will only serve to validate information already provided to that authority by the taxpayer.

Cayman National are working to classify all our clients (and for trust or company arrangements, parties to such entities) to establish their personal status for reporting purposes.  Over the coming months we may be in touch to confirm status, or to validate the classification decisions we have reached.

If clients have any concerns regarding these measures, they should seek appropriate professional advice.