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FATCA poses a strategic dilemma

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London & Capital co-founder Daniel Freedman responds to the ‘Model Inter-governmental Agreement to Improve Tax Compliance and Implement FATCA’, made in conjunction with the governments of France, Germany, Italy, Spain and the USA…

Assuming that firms can identify US-linked clients they are left on the horns of a strategic dilemma, to create a compliant investment solution or not.  Such solutions must not only avoid toxic assets but also meet the onerous reporting requirements.  The vast majority of firms have concluded that the costs are simply too high and have made the commercial decision to exit the market, making their US clients orphan.
 
In dealing with US clients one has always to understand the challenges of working across the jurisdictions, and the regulatory and investment implications of doing so.  Wealth managers which want to continue working with clients who have a US tax reporting obligation have had no choice but to invest heavily in systems capable of handling not only the sales aspects of the business but also its operations and – for tax and compliance purposes – more complex investment reporting requirements.  This is expensive and time consuming and we expect it to result in a significant number of firms exiting the market.
 
We have been working ever more closely with the leading legal and accountancy firms and with the alumni of many leading US colleges and interest groups, to promote awareness of the implications of this legislation – and we have accelerated our series of FATCA seminars, by popular demand.  In parallel, we have seen interest in our range of US-compliant investment solutions increase almost three-fold over the course of the last year. 
 
As we draw closer to the implementation of this Act, we expect to see activity in the market intensify as wealth managers and institutions make final decisions as to where they will invest their resources.
 

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