Last updated on September 17th, 2021 at 04:02 pm.

In this article we are going to cover the overview of FATCA for US and Non-US Financial Institutions, what FATCA Filing Requirements Do Banks Need to Facilitate and the Key to Aligning with FATCA. The Foreign Account Tax Compliance Act, or FATCA, is a tax law that applies to both US citizens based both at home and offshore. It requires them to file regular annual reports on any foreign account holdings they have under their name. FATCA was originally endorsed in 2010 as a key part of the Hiring Incentives to Restore Employment, or the HIRE Act. Taken together, these legislations are meant to do two things:

  1. Uphold a higher level of transparency in the area of global financial services, and;
  2. Prevent tax evasion on the part of American taxpayers who hold accounts and other types of financial assets abroad.

The implementation of FATCA is overseen by the US Treasury Department and the US Internal Revenue Service (IRS). It covers banks as well as other financial institutions like brokers, investment entities, and some insurance carriers. And FATCA doesn’t exclusively apply only to US financial institutions. It also applies to foreign financial institutions with clients who are US citizens.

This article is a briefer on what banks need to know about FATCA compliance and the challenges they face in their compliance journey. Now is a good time for constituent banks to do their research on compliance AML solutions that will help their institutions stay in line with the directives of FATCA.

An Overview of FATCA for US and Non-US Financial Institutions

First, when taking FATCA into consideration, it’s worth examining what the law requires of both US and non-US financial institutions. The former may already know that they must fulfill certain FATCA-specific obligations, such as withholding 30% on US-sourced payments to foreign entities if these can’t be documented for the purposes of the Act. To meet those obligations, US-based banks and other financial institutions must stay on top of the data that goes into FATCA-specific forms, like Form 1042 (pertaining to the annual withholding tax return for the US-sourced income of foreign persons).

Foreign financial institutions also have their own hurdles to clear when it comes to staying compliant to FATCA. Under the FATCA Intergovernmental Agreement (IGA), non-US financial institutions must be able to disclose the identities of the US citizens that hold accounts with them. They must also be able to declare the value of US account holders’ assets to IGA or the IRS.

Not being in line with FATCA standards for reporting can be costly for foreign financial institutions that want to do business with US citizens. Aside from excluding the said institutions from the US market, non-compliance to FATCA also subjects them to a steep tax penalty of 30% of withholdable payments on dividends, wages and salaries, remunerations, and the like.

What FATCA Filing Requirements Do Banks Need to Facilitate? 

Under FATCA, the primary filing requirement that banks need to oversee is their US account holders’ Form 8938, or the Statement of Specified Foreign Financial Assets. US citizens who have amassed $50,000 worth of aggregate value on their foreign financial assets must attach their Form 8938 to their annual income tax return. The bank’s customers may also need to file the Financial Crimes Enforcement Network (FinCEN) Form 114, or their Report of Foreign Bank and Financial Accounts (FBAR).

Another factor that banks must keep abreast of is the different reporting thresholds allowed to US citizens, because this differs based on whether the account holders live abroad, whether they’re filing joint income tax returns with their spouse, and other criteria. Banking staff also carry the burden of sending customers the forms or referring them to resources where they can fill them out. Lastly, for the purpose of full FATCA compliance, banks assume the duty of screening customers and declining new accounts or other financial products and services to customers who refuse to comply.

This puts a lot of documentation, screening, and reporting-related pressure on banks dealing with US clients. Luckily, there’s a way to get a better handle on FATCA compliance, and that lies in modernizing financial institutions’ FATCA-related IT infrastructure.

Improving Banks’ Current Compliance Architectures: The Key to Aligning with FATCA

FATCA may be a difficult law to implement for the sheer amount of data gathering and analysis it demands of its constituent institutions. Banks may be overwhelmed with the idea of keeping track of their US taxpayer clients, particularly when having to calculate withheld payments on such a large scale. But one thing that can grant a bank more mastery over the demands of FATCA, and therefore ensure its alignment with the law, is an upgrade to its FATCA-related compliance architecture.

It may be high time for local and foreign banks alike to oversee IT upgrades that can streamline their FATCA compliance processes. If this is done, some of the improvements they can anticipate in their compliance journey are:

  • Seeing all FATCA-designated data conform to one language under the system.

  • Greater ease in managing the many different accounts held by US taxpayers.

  • Better management of FATCA lists, withholding lists, and information on reporting thresholds from one single repository, as well as an exact and reliable withholding management system.

  • A means to integrate FATCA compliance directly into the bank’s customer onboarding processes. Ensuring that onboarding processes are already compliant to FATCA, and that the FATCA perspective is already pre-configured into the bank’s customer view, will save banking providers both time and money.

  • A means to implement customer due diligence (CDD), know your customer (KYC) processes, and anti-money laundering (AML) policies that are up to US standards.

  • The ability to maintain several years’ worth of data that’s relevant to FATCA’s regulators, including the history of the customer’s account.

  • Quick and easy electronic filing to the IRS and IGA.

Investing in a bank’s FATCA-related compliance architecture also means investing in its future capabilities to keep up with evolving FATCA regulations. Though the essence of the law may remain the same, some specific FATCA regulations may change over time. Constituent banks will benefit from onboarding IT solutions that can accommodate these changes flexibly.


FATCA compliance might be looked upon as a burden, especially to foreign financial institutions. It means dealing with the costs and the efforts of accurate reporting, with no opportunity to add business value along the way. Believe you now know the FATCA filing requirements.

But the savings from potential tax penalties, as well as unhampered business with US clients, can also be considered a significant return on investment. So if you’re a decision-maker in your own bank’s compliance—and you understand the value of keeping up a global standard of financial transparency—consider future-proofing your current compliance architecture with FATCA in mind. Believe now you know what FATCA is and FATCA filing requirements.

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