FATCA and other tax information swapping laws between countries to crackdown on people not declaring their true financial status could lead to a boost in trade for wealth managers.
The global financial services industry is facing an unprecedented wave of change to uncover lost tax – with the US Foreign Account Tax Compliance Act (FATCA) leading the way.
In Britain – the first country to sign up to FATCA – a financial firms have had to come to terms with the new Financial Services Authority (FSA) inspired retail distribution review which was implemented on January 2, 2013.
The basic aims are to ban commission payments for financial advisers and to safeguard consumers.
FATCA is also fast approaching – due to start on January 1, 2014 – and will compel foreign financial institutions to identify their US taxpaying clients and what assets they hold for them, so that the US Internal Revenue Service (IRS) can tax them accordingly.
Waiting in the wings is ‘Son of FATCA’, which is the British version of the law. This will force firms in the UK, overseas territories and Crown Dependencies, like the Channel Islands, to reveal details of British taxpaying account holders to HM Revenue & Customs.
However, some wealth management firms predict these changes will bring opportunity – and many admit the number of American clients is growing as a result of the forthcoming legislation.
“These clients need very specialist advice about complying with new tax laws, which combined with the continuing economic malaise, is seeing making wealth managers offer an increasingly tailored and a personal service,” said one adviser.
However, some wealth management firms are wary of how dealing with FATCA and other tax clients may affect their relationships with the authorities in the USA and Britain, who are spearheading the charge against tax management strategies.
Also, one of the biggest issues facing financial firms isn’t the dilemma of revealing who their clients and account holders are – but the expense of gathering and submitting the required information.
This process will cost, says the European Banking Federation, around £6.50 per account to process – a huge amount for big banks.
A spokesman for financial firm Aite Group said: “Firms with their own systems they have in place are more likely to able to supply the necessary information. The costs will vary based on the data needed by different governments.”