Global banking trends

Global efforts to combat tax evasion and ensure tax compliance were launched in 2013 with the US government’s Foreign Account Tax Compliance Act (FATCA). This was followed in 2016 by the launch of the OECD’s Common Reporting Standard (CRS). Both initiatives facilitate the exchange of information on bank accounts and financial assets of individuals and companies around the world. Healy Consultants Group PLC advises our multinational Clients on global reporting regulations, and how they affect banking services.

  • Common Reporting Standard (CRS)

    • The CRS is the world’s largest-ever counter tax evasion initiative. It details the due diligence and reporting requirements that countries must follow to accurately determine the tax liability of their residents. More than 90 jurisdictions have agreed to the automatic exchange of information of the bank accounts and assets of non-resident individuals and companies. By the end of 2019, data on more than 47 million offshore accounts had been shared globally;
    • The financial institutions exchanging information include i) deposit-taking banks ii) brokerage firms iii) custodial institutions iv) some investment companies; and v) certain collective investment and insurance vehicles.

    What this means for our Clients

    • Under the CRS, financial institutions (reporting entities) annually report financial information of their customers (individuals and entities, including partnerships and trusts) to their national tax authorities. The authorities collate data and exchange information with their counterparts in the jurisdiction where the customer is tax-resident;
    • Information is exchanged on i) tax identification number(s) ii) account balances iii) investment income including dividends, interest payments and annuities; and iv) proceeds from the sale of financial assets;
    • All individuals/entities wishing to open bank accounts must provide due diligence which enables the bank to determine the tax residency of the individuals/ultimate shareholders. If the bank determines the individuals involved are tax resident in a CRS-participating jurisdiction, information is passed to the tax authority in the Client’s country of residence;
    • CRS reporting criteria, thresholds and exemptions exist for individuals and entities. Healy Consultants Group PLC’s global staff will advise Clients on all CRS-related reporting obligations, and any implications for their business and personal financial circumstances.
  • Foreign Account Tax Compliance Act (FATCA)

    FATCA is a US government information-sharing regime designed to crack down on tax evasion by individuals and entities. Though smaller in scope than CRS, i) foreign financial institutions and ii) US tax-resident individuals are required to disclose details of foreign assets to the Inland Revenue Service (IRS).

    Foreign Entities

    • All foreign entities must disclose their FATCA status to financial institutions (both US and non-US based) when i) opening a bank account or ii) receiving passive US-sourced income;
    • If a non-financial entity with a 10% stake held by US tax-resident individuals/entities opens a new bank account, the bank submits account information to the IRS annually;
    • In case of a financial entity, the bank will provide account information to the IRS even if the US tax-resident individuals/entities hold a stake of less than 10% in the entity;
    • When receiving passive income from US sources, all entities must provide their FATCA status to avoid being subject to a 30% withholding tax.

    Individuals

    • All US tax-resident individuals must disclose details of their offshore bank accounts and assets to the IRS, if their cumulative value exceeds US$50,000;
    • US citizens, green card holders and foreigners present in the US for 31 days in a calendar year, or 183 days in a consecutive three-year period (including the current year), must also disclose their details.

    Withholding Agents

    • Under FATCA rules, financial institutions, including depository institutions, custodial institutions and investment vehicles, must act as a ‘withholding agent’ on behalf of the IRS. Our Clients wishing to set up these types of business and conduct business internationally must comply with the ‘Foreign Entities’ criteria above;
    • Institutions may register directly with the IRS or indirectly through their national governments. Institutions which refuse to comply face a penalty of 30% withholding on passive US-sourced income.

    Information to be provided to the IRS

    • For accounts of US tax residents, or companies with US tax resident involvement, the following is submitted to the IRS: i) name, address and tax ID of the account holder ii) account balances at year-end and iii) income, dividends, interest or other amounts received throughout the year.
  • New regulations for global banks

    In addition to CRS and FATCA reporting requirements, international banks must comply with a raft of new regulations as part of more rigorous know your customer (KYC) processes. These changes can impact Healy Consultants Group PLC’s Clients by i) requiring them to submit additional documentation to verify their identity during bank account opening ii) slowing the lead time to open a bank account and iii) sometimes requiring them to travel to open the bank account.

    Challenges faced by the international banking system

    • International banks face more stringent regulations (beyond traditional customer due diligence) around KYC to address i) tax evasion ii) terror financing iii) money laundering etc;
    • In addition to CRS/FATCA, banks face additional regulations including i) MiFID II in the European Union ii) FinCEN CDD Final Rule, which prioritises the identification and verification of beneficial ownership iii) the Fifth Money Laundering Directive, which became effective in January 2020 introducing more stringent beneficial owner checks and ongoing customer due diligence;
    • Due to the increased sophistication of financial crimes, KYC requirements are increasingly complex, vary from jurisdiction to jurisdiction, and are evolving quickly;
    • The pace of financial innovation, including crypto-currencies/blockchain, mobile payments and other digital services, will present further challenges for bank compliance teams in future;
    • Some major financial institutions spend $500 million annually on KYC/due diligence;
    • Since 2010, regulators in the US, Europe, Asia Pacific and the Middle East have levied more than $26 billion in financial penalties against financial institutions for AML/KYC and sanctions-related violations.

    What this means for our international Clients

    • Tier 1 banks are less welcoming of international entrepreneurs because i) Tier 1 banks increasingly prefer to onboard medium to large-sized Clients and ii) they prefer to onboard companies incorporated in the country where the bank operates. Where Tier 1 banks are not an option for our Clients, Healy Consultants offer Tier 2 bank solutions around the world;
    • Client onboarding and bank account opening lead times are slower. Our Clients should expect bank account approval to take up to four weeks;
    • Global banks now require evidence of proof of business in the country where the corporate bank accounts will be, including sales contracts or lease agreement;
    • Global banks consider offshore entities who wish to engage in international corporate banking in their jurisdiction higher risk than local incorporated entities. Hence, when opening such a corporate account, Healy Consultants explains to the banks why an offshore corporate account is needed by our Client by presenting a business plan, proof of local business etc;
    • A significant number of companies change banks as a result of KYC stresses;
    • Because of the increased costs of meeting regulatory requirements, banks may pass costs onto the customer in banking fees;
    • Financial crime compliance continues to be a core priority for global regulators and law enforcement agencies. Banks can therefore expect further compliance requirements in future.

    Long-term impacts on Healy Consultants’ international clients

    New technologies such as automation, artificial intelligence data management solutions and natural language processing will speed up online identity verification and AML screening. Because banks will be able to source beneficial ownership information from unstructured content i) the amount of documentation our Clients must submit will be reduced and ii) bank account opening lead times will be shortened.

    Conclusion

    Healy Consultants’ assists our global Clients adjust to new banking regulations to minimise and mitigate any impacts on their business. If our Client is required to travel, Healy Consultants offers Client support services including i) airport meet and greet ii) assistance scheduling meetings and iii) accompanying our Client to local suppliers, banks, government offices, lawyers and accountants.

Contact us

For additional information on our Glboal banking trends services in USA, please contact our in-house country expert, Ms. Chrissi Zamora, directly:
client relationship officer - Chrissi
US sec us chamber US dhs US commerce department US irs US sba US aicpa acaus