Rudo Mugwagwa
Rudo advises on investment funds, corporate, and cross-border compliance matters, with experience across fund formation, governance, and investor-side advisory.
For financial institutions subject to U.S. FATCA, annual reporting is only one part of the compliance process. Preparing to file also requires financial institutions to confirm that account holder documentation is complete, internal procedures are being followed, applicable certifications are up to date, and the institution’s FATCA compliance program reflects its actual practices.
Preparing before the reporting deadlines gives financial institutions an opportunity to identify documentation, procedural and reporting issues before they affect the filing process.
Understand the Difference Between Model 1 and Model 2 Jurisdictions
The administrative process can also differ depending on the applicable intergovernmental agreement (“IGA”).
In Model 1 IGA jurisdictions, financial institutions generally report the required information to the relevant local authority, which then exchanges that information with the Internal Revenue Service (“IRS”).
In Model 2 IGA jurisdictions, financial institutions generally report the required information directly to the IRS. The applicable IGA also provides for information exchange between the IRS and the relevant local authority certain circumstances.
That distinction makes advance preparation particularly important when filing issues need to be resolved.
Review Account Holder Information Before Filing
A key part of FATCA preparation is confirming that the tax certifications and other due diligence information held for account holders remain complete and valid.
Financial institutions should review whether the due diligence information they have on file for each account holder is current and document any relevant material changes that have occurred. This may include changes in ownership or controlling persons, changes in jurisdiction or residence, or other circumstances that affect the validity of existing documentation, the account holder’s FATCA classification or the institution’s reporting obligations.
Make Sure Policies Match Procedures
Written FATCA policies are not enough if the institution’s team follows a different process in practice.
Policies should accurately reflect the institution’s actual due diligence, documentation, escalation and reporting procedures. Where practice has evolved but the written compliance program has not, the institution should identify and address those inconsistencies.
Filing season can serve as a useful checkpoint to confirm that:
- FATCA policies are current.
- Internal teams are following those policies.
- Account holder documentation and certifications are complete.
- Any gaps or issues have been identified.
The broader objective is not simply to maintain written procedures, but to make sure the compliance program operates consistently with them.
Track FATCA Certifications
Financial institutions should determine which certification requirements apply to their particular classification and monitor the applicable deadlines.
For entities subject to IRS certification requirements, the Responsible Officer may be required to submit a Certification of Preexisting Accounts and/or periodic certifications confirming compliance with applicable FATCA requirements.
For participating financial institutions, including those subject to the Model 2 IGAs, periodic certifications generally operate on a three-year certification cycle, with certification due by July 1 of the year following the end of the applicable certification period.
Maintaining the FATCA compliance program throughout the reporting cycle can make the certification process more manageable and help ensure potential compliance issues are identified before certifications become due.
Use Filing Season as a Compliance Checkpoint
FATCA reporting should not be viewed solely as a report submitted at the end of a process.
Each filing cycle creates an opportunity to review whether documentation is complete, policies remain valid, certifications are on track, and the institution’s internal procedures are functioning as intended.
Early coordination within the institution can make the reporting process more manageable and reduce the likelihood that documentation or procedural gaps are discovered too late.
Key Takeaways
- FATCA compliance involves more than submitting an annual report.
- Account holder documentation should be reviewed for completeness and relevant changes in circumstances.
- Written policies should align with the procedures the institution actually follows.
- Applicable FATCA certification requirements and deadlines should be monitored.
- Model 1 and Model 2 jurisdictions involve different reporting and administrative processes.
- Early coordination can make FATCA reporting and compliance issues more manageable.
A well-managed FATCA compliance program depends on current documentation, consistent procedures, timely certifications, and preparation before filing deadlines.
Using each filing season as a compliance checkpoint can help financial institutions identify gaps and keep their reporting processes organized.
Basswood Counsel assists financial institutions with FATCA reporting and compliance, for institutions operating under Model 2 arrangements.
Contact our team to discuss FATCA documentation, reporting or compliance questions.