The Foreign Account Tax Compliance Act (FATCA) is a U.S. federal law aimed at ensuring U.S. persons report their non-U.S. financial accounts to the Financial Crimes Enforcement Network (FinCEN). Challenges in implementing FATCA include enhancing operational procedures, insufficient account information, and the need for knowledgeable staff within financial institutions. Compliance involves understanding FATCA requirements, strategic decision-making about client retention, and leveraging technology solutions, such as those offered by Hexanika, to address data sourcing and reporting challenges.

1. FATCA: why is it so difficult even after so many years?
Overview-
On the outset, let’s first understand what exactly FATCA (Foreign Account Tax
Compliance Act) is in its simplest sense: “The Foreign Account Tax Compliance Act
(FATCA) is a United States federal law whose intent is to enforce the requirement for
United States persons (including those living outside the U.S.) to file yearly reports on
their non-U.S. financial accounts to the Financial Crimes Enforcement Network
(FinCEN).”
Under this law, all non-U.S. Foreign Financial Institutions (FFI’s) are required to search
their records for U.S. persons and to report the assets and identities of such persons to the
U.S. Department of the Treasury.
Basically, FATCA was enacted for the purpose of detecting non-U.S. financial accounts
of U.S. domestic taxpayers rather than to enforce collections on non-resident U.S.
citizens. It was brought into being to recognize approximately 8.7 million U.S. citizens
staying outside the mainland and believed to be U.S. persons for tax purposes. This, in
turn, would help in identifying the signatories of accounts of U.S.-persons and their other
assets like non-U.S. corporations, volunteer organizations and any other non-U.S. entity.
It is also used to locate U.S. citizens and to collect and store information including total
asset value and social security number. FATCA is also used by government personnel to
detect U.S. persons and their assets and to enable cross-checking where assets have been
self-reported by individuals. FATCA data is used to crosscheck a U.S. person's self-
reported data at the Financial Crimes Enforcement Network (FINCEN). U.S. persons,
regardless of residence location and regardless of dual citizenships, are required to have
self-reported their non-U.S. assets to FINCEN on an annual basis. Based on a specific
qualification criteria, individuals have to report this information on form 8938 which is
an information reporting form provided by the Internal Revenue Service (IRS).
The legislative history1
of FATCA can be traced as follows:
1. Introduced in the House and Senate as Foreign Account Tax Compliance Act of
2009 in October 2009.
2. Committee consideration by Senate Finance, House Ways and Means.
3. Passed the Senate on February 24, 2010.
1
Source: Wikipedia

2. 4. Passed the House as the Hiring Incentives to Restore Employment Act, Title V,
and Subtitle ‘A’ in March 2010 with amendment.
5. Senate agreed to the House amendment.
6. Signed into law by President Barack Obama.
It is intended to increase transparency for the Internal Revenue Service (IRS) with respect
to U.S. nationals that may be investing and earning income through non-U.S. institutions.
Figure 1: Schematic explaining basic entities of FATCA2
.
Challenges-
In the years leading up to the passing of the Law, implementation of FATCA has had its
fair share of challenges. Let’s look at some of the challenges3
posed to banking and
financial services industry by FATCA legislation:
2
Link: https://www.kpmg.com/LU/en/IssuesAndInsights/.../FACTA-Banks.pdf
3
Link: mindtree-thought-posts-white-paper-impact-of-fatca-on-financial-institutions.pdf

3. 1. Enhancing operational procedures: Impacted institutions will have to re-
consider their procedures specifically around client onboarding since all checks
and balances have to be put in place in order to identify a US resident at the time
of onboarding.
2. Insufficient account information: The way in which institutions are recording
and storing client and account data may not be adequate enough to identify the
data that needs to be reported to the regulators. In order to remedy this situation,
an extensive data cleansing exercise may have to be performed.
3. Lack of central customer data: Very few institutions have all client information
readily available at a single place. Usually data is scattered across multiple
product and region-specific data stores. Synergizing the data together to make the
required determinations with respect to account holders will be a significant task.
4. Lack of knowledgeable staff: FATCA being an exhaustive regulation, the
impacted institution’s staff may not have thorough knowledge about the nuances
of the regulation. In most cases, such firms will have to look for external help to
decipher the regulation and identify its impact on their business procedures.
5. Integrating integral systems: Multiple systems within the institution’s IT
landscape will have to be linked efficiently to enable data collation and
aggregation to generate the required reports. This may be a challenging task,
depending on the scalability of the institution’s IT architecture.
6. Enhancing existing systems: Impacted institutions will have to enhance their
existing customer and transactions applications, or in some cases build new ones,
to bring in a robust rules management engine that can identify entities to be
reported. They will also have to bring in business intelligence to create regulatory
reports and enable senior executives to monitor compliance.
Further, to successfully navigate FATCA, financial leaders would need to address the
following eleven key challenges4
:
1. Program governance/ownership: The enterprise-level effort required allocation
of people, budget and project ownership across the businesses, operations,
compliance and tax.
2. Legal entity analysis: Determining the status of entity for FATCA purposes may
be challenging.
4
Link: http://www.ey.com/gl/en/industries/financial-services/banking---capital-markets/fatca--eleven-
challenges-of-complying-with-fatca

4. 3. Existing account information: Despite Know Your Client (KYC) information
being readily available and/or could be leveraged, at various instances, the
customer data is hard to locate.
4. Lack of central customer data: Very few organizations have a single source of
necessary information to readily make the required determinations with respect
to account holders.
5. Timing: The short time frame for implementation requires immediate focus on
key start-up tasks while the Treasury Department and the IRS develop additional
guidance as to the final regulations are not yet released.
6. Technology: Numerous unrelated systems must be addressed and modified to
enable new required information reporting and withholding at the FFI and USFI
levels.
7. Education: Generally, there is not a full awareness of FATCA, its requirements
and the resulting impact to the businesses, which will necessitate early, senior-
level commitment and communication.
8. Vendors: Vendors FATCA readiness and capabilities will need to be assessed.
9. Pass-thru payments: FFIs will need to identify where income is earned and
sourced on a quarterly basis.
10. Private banking relationships: FFIs will need to identify private banking
relationships and educate relationship managers.
11. Account governance: An officer will need to ascertain governance and control
over guidance given to US account holders as of 6 August 2011.

5. Figure 2: Role players of FATCA.
Implications-
Some important steps financial institutions can follow to comply with the regulations of
FATCA are described below:
1. Understanding FATCA: Workshops and consultations with specialists can help
leaders gain an understanding of new regulations and their effect on business
activities.
2. Strategic decisions: Financial intermediaries must decide whether US persons will
be retained as clients and whether US securities will be included.
3. Implementation guidance: FATCA implementation and the actual specifics of the
requirements must be continually analyzed and an operating model must be adapted
to prepare for compliance. Foreign Financial Institutions (FFIs) need to:
i. Educate about the need to comply with FATCA.
ii. Conduct a high level review of affected business operations and entities.
iii. Assign primary points of contact for the FATCA initiative and for affected
operations and entities.

6. iv. Develop an initial FATCA roadmap with timelines, work streams, outputs and
targeted deadline.
v. Study how entities currently keep track of customer accounts and if the accounts
are linked to one another.
vi. Ascertain data that is kept on paper and stored electronically.
vii. Identify processes, procedures and technology systems that will need to be
enhanced or added.
4. Implementation: Financial institutions will need time to make their processes and
systems compliant to the new regulations. Systems should be ready three months
prior to the application of new FATCA regulations, so as to ascertain smooth
functioning.
Figure 3: Possible roadmap for FATCA compliance.
How Hexanika Addresses FATCA Regulations-
Hexanika is a RegTech big data software company, which has developed the
revolutionary software platform called SmartJoinTM
for financial institutions to address
data sourcing and reporting challenges for regulatory compliance. SmartJoinTM
improves
data quality while the automated nature of SmartRegTM
keeps regulatory reporting in
harmony with the dynamic regulatory requirements and keeps pace with the new
developments and latest regulatory updates.

7. Figure 4: Distinctive Algorithm Intelligence
Financial institutions benefit can address FATCA using Hexanika solutions in the
following ways:
1. Use of Big data technology for high capacity need based engine which shall
enhance the accuracy of data.
2. Distributed computing for enhanced data quality and time saving.
3. Semantics enabled for less errors and clear cut understanding of the end user.
4. Machine learning enabled for cost avoidance and process automation.
5. Centrally Hosting Services resulting in ease of use and cost reduction.
Conclusion-
FATCA is one of the most far-reaching tax legislation to impact financial institutions
globally. FATCA compliance is complex and time consuming and requires co-ordination
of several business lines and geographies. In addition, timing is of utmost importance and
deadlines are fast approaching. The focus is on rapid deployment at reduced compliance
costs. Allocating adequate resources to plan, choose and deploy a comprehensive
FATCA solution will help reduce risks and costs significantly, and streamline
deployment. Various Inter Governmental Agreements (IGAs) have also been signed with
several countries worldwide to bring them under the umbrella of FATCA. Another
precipitate, one can say, of the FATCA is the marked increase in number of Americans
renouncing their citizenships (from just 1,006 in 2010 to 3,415 in 2014).
Hexanika addresses FATCA regulations using its unique product and solutions. To know
more about us, see: http://hexanika.com/company-profile/

8. Feel free to get in touch with our experts to know more at: http://hexanika.com/contact-
us-big-data-company/
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