HMRC Draft Regulations, Guidance and Consultation Response

HMRC issued draft Regulations and Guidance Notes for Financial Institutions on the UK/US Intergovernmental Agreement, together with its Consultation response.

The Intergovernmental Agreement (IGA) was aimed at addressing legal barriers to complying with FATCA, reducing the administrative burden for financial institutions and establishing a reciprocal approach to information exchange. HMRC has released draft guidance on implementing the IGA following consultation with relevant businesses, representative bodies and tax professionals.

Key Points of draft Guidance

The draft Guidance sets out in more detail the definition of Financial Institution and Financial Account and considers relevant due diligence procedures to undertake once these classifications have been made.

The key features of the guidance for UK Financial Institutions are as follows:

Financial Institutions

  • The draft Guidance sets out how the IGA applies to entities that meet the definition of Financial Institution and are resident or located in the UK;
  • Subsidiaries and branches of UK entities that are not located in the UK are excluded from the scope of the UK IGA and will be covered by the Agreement and legislation of the country in which they are located;
  • Depository Institutions will be viewed in conformity with relevant other relevant regulations (i.e. Financial Services and Markets Act 2000 definitions) and include savings or commercial banks, credit unions, industrial and provident societies, building societies;
  • Custodial Institution has been interpreted broadly to include brokers, custodial banks, trust companies, clearing organisations and nominee companies;
  • The definition of Investment Entity will include collective investment vehicles, fund managers, investment managers, fund administrators, transfer agents, depositories and trustees of unit trusts, however only collective investments vehicles (i.e. funds), will be required to report on Financial Accounts;
  • In all other instances (e.g. for fund managers, investment managers, fund administrators etc), where an entity is an Investment Entity solely because of its relationship with a collective investment vehicle, no reporting will be required;
  • Fund nominees/intermediaries and platforms will, in most instances, be regarded as Custodial Institutions, by virtue of holding assets on behalf of others;
  • Most Trusts will be classified as Non-Financial Foreign Entities (NFFEs) with the exception of Unit Trusts, Investment Trusts and Venture Capital Trusts. As an NFFE, a Trust will be required to provide self certification as to its status as an Active or Passive NFFE, which will in practice be the responsibility of the Trustee;
  • Trustees acting on behalf of Trusts will be seen as a Financial Institution where they are a remunerated independent legal professional, or a trust or company service provider as defined in the Money Laundering Regulations 2007.

Financial Accounts

  • The draft Guidance provides that once a Financial Institution is identified, it is important to understand whether the Financial Institution holds Financial Accounts, the type of Financial Accounts held and whether these accounts are held by Specified US Persons;
  • Where no Financial Accounts are held by a Financial Institution, no reportable accounts will exist, however a nil return may still be required;
  • The term Financial Account is to be interpreted more broadly than is the case where the term is found in other UK Legislation;
  • Depository Accounts will primarily be focused upon any commercial, current or savings accounts, and include pre-paid payment cards that can be pre-loaded with funds to be spent at a later date (i.e. pre-paid credit cards);
  • As noted above, the only Financial Accounts relevant to a Collective Investment Vehicle will be that of Debt or Equity interests in the Collective Investment Vehicle;
  • Provision is allowed such that Annex II can be updated in the future for the addition or removal of further categories of low risk products.

Due Diligence and On-boarding

  • Under the draft Guidance, where Financial Accounts exist, Financial Institutions will be required to undertake due diligence, aggregation and self-certification exercises in respect of information provided by pre-existing and new individual and entity account holders;
  • In order to determine whether various account thresholds apply, Financial Institutions will need to aggregate account balances where a computerised system can link the account by reference to a common data element. Aggregation will apply across accounts of all types (i.e. Depository Accounts can be aggregated with Custodial Accounts). Further, such aggregation extends to related entities of a Financial Institution, and thus can include overseas related entities;
  • In respect of self certification for new individual accounts, the draft Guidance sets out the minimum requirements a Financial Institution can apply in order to certify whether a new account holder is resident in the US for tax purposes or a US citizen;
  • A number of examples are provided to illustrate self certifications which may be used across a range of new individual and entity account opening procedures (i.e. by phone applications, online applications, or written application forms);
  • A Financial Institution is required to confirm the reasonableness of any self certifications based on information obtained by the Financial Institution, which may include information obtained pursuant to AML/KYC procedures;
  • Generally, a Financial Institution can meet its entity account AML/KYC review requirements by relying upon the AML procedures performed by third parties;
  • A Financial Institution may also request that a third party obtain the self certifications for account holders and confirm the reasonableness of such self certifications based upon the information gathered.


  • No detail has been given regarding registration procedures within the draft Guidance, however the IRS registration portal is expected to open in the first half of 2013;
  • There is no equivalent in the IGA to the Responsible Officer requirement set out in the draft US Regulations, as a diverse range of views were expressed during the Consultation process in relation to the viability of such a role;
  • However, compliance will be linked in with the Client Relationship Manager (CRM) function for UK Financial Institutions where one exists. Where there is no CRM, compliance activity will follow a risk based approach.


  • In accordance with the draft Guidance, UK Financial Institutions will not be required to withhold on payments of US source income, nor should they be subject to withholding on US source income, providing the Financial Institution is in compliance with the reporting requirements set out in the Intergovernmental Agreement and are in compliance with the Legislation.
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