Managing FATCA Client Communications: Move Quickly but Carefully

Ending months of anticipation by financial institutions around the world, in February 2012, the US Treasury and the Internal Revenue Service (IRS) issued further details on the Foreign Account Tax Compliance Act (FATCA). The announcement provided proposed FATCA regulations and many specifics that will enable firms to accelerate their preparation efforts ahead of the 2013 compliance deadline. While the announcement clarified a number of tax rules, it also left a number of crucial operational questions unanswered.

Some of the most vital operational questions concern how firms will communicate with clients and begin to collect the information necessary to comply. FATCA requires foreign financial institutions (FFIs) to gather comprehensive data from clients, potentially including government-issued identification, beneficial ownership details and other personal material. Firms need to start thinking now about the broader communication implications of FATCA and determine the most effective ways to educate and efficiently gather the necessary information from their clients -- without annoying them.

Exactly what information firms will have to gather and report will vary, but the need to collect data will remain consistent -- and challenging -- regardless of geography. In February, the Treasury issued a joint statement, in conjunction with authorities in France, Germany, Italy, Spain and the UK. Under this new FATCA framework, regulators in each nation will be responsible for reporting client information to their respective governments, who will share the data with the IRS. There is also an implied reciprocity, meaning that U.S. financial institutions may be required to share data on account holders from partnering jurisdictions. In all instances, gathering and reporting client information will remain the responsibility of the financial institutions themselves.

In order to gather this data effectively, without wasting their own funds or -- perhaps worse -- wasting their clients' time, financial firms will need to follow four rules:

1. They will need to vary their communications approach, depending on the nature of each client.
2. They will have to scale their compliance programs, taking into account the number of customers and the amount of time each implementation will take.
3. They must avoid contacting existing clients multiple times in order to obtain information.
4. They should take advantage of any available opportunities to improve the customer experience.