Compliance Alert: Does FATCA & CRS Regulations really apply to non-regulated entities? Yes, it does, find out how!!!
Who are classified as Non-regulated Entities and how are they impacted?
A Non-regulated Entity is any Reporting Financial Institution (“RFI”) that does not otherwise report (including nil reports/returns) to the Central Bank of the UAE, the Securities and Commodities Authority, Abu Dhabi Global Market (“ADGM”) or Dubai International Financial Centre (“DIFC”) for FATCA or CRS purposes. Such entities are required to report to the Ministry of Finance (“MOF”) as the Competent Authority for reporting in the UAE.
FATCA & CRS regulations apply to a Reporting Financial Institution (“RFI”) as a legal entity classification under the respective regulation and includes an “Investment entity”.
A Non-regulated Entity (“Non-FS Entity”) could be caught by the definition of Investment Entity under the FATCA/CRS, if:
- its gross income is primarily attributable (i.e., 50% or more) to investing, reinvesting, or trading in Financial Assets; and
- the entity is managed by another entity that is a:
- Depository Institution, a Custodial Institution, a Specified Insurance Company, or an Investment Entity;
- that acts for or on behalf of customers; and
- has discretionary authority to manage the Non-FS Entity’s assets.
Such Non-FS Entities may include but are not limited to:
- Investment Fund Vehicles
- Single Family Office
- Holding Company
- Proprietary Investment Company (i.e., an entity with a Commercial Licence that includes one or more Proprietary Investment activities)
Specific guidance has been issued by the various Supervisory Authorities as to the applicability of the Investment entity definition to Non-FS entities for which reference should also be made.
FATCA requires RFIs to report only those customers who qualify as U.S. persons whereas under CRS, virtually all foreign investments handled by a financial institution becomes subject to a CRS report.
A Non-FS entity caught under the definition of Investment Entity and in turn as an RFI must therefore meet the obligations as set out under the respective regulations.
Once classified as an RFI, such institutions must report on identified Reportable Accounts / Financial Accounts (or report that it does not have any such accounts via the provision of a nil return) via the relevant filing portal (provided by the Ministry of Finance “MOF”).
Who are classified as a Reporting Financial Institution (“RFI”)?
If the entity falls under any of the below classification (which is further defined in detail in the relevant regulations), then it may be classified an RFI unless exempt under the FATCA & CRS regulations:
- Custodial Institutions
- Depository Institutions
- Investment Entities
- Specified Insurance Companies
These include, amongst others, banks, custodians, investment traders, asset/wealth managers, funds and life insurance companies.
What are the obligations that an RFI must comply?
RFIs (including applicable non-regulated Entities) are required to comply with the FATCA/CRS regulations. Broadly, it must:
- Comply with registration requirements (i.e., register with the IRS on the IRS FATCA FFI registration system and with their respective regulatory authority, i.e., MOF for CRS).
- Perform due diligence on financial accounts that it maintains;
- Annually report all US Reportable Accounts / non-US Financial Accounts that it maintains or file a NIL return if it does not maintain any such accounts;
- For FATCA – Annually report any payments made to Non-Participating FIs; For CRS – Annually report information to the MoF about certain individual accounts that are “undocumented account”; and
- Continuously monitor for changes in circumstances that results in the change of an account holder’s FATCA status.
The above is not an exhaustive list of the obligations of RFI as under both FATCA & CRS considerations must be given to the additional requirements concerning self-certifications, specific onboarding, remediation, due diligence and reporting enhancements and processes
- Non-regulated entities that are RFIs are required to register on the MOF portal.
- RFI must report on identified Reportable Accounts (or report/submit that it does not have any such accounts via the provision of a nil return) via the filing on the MoF portal.
- All relevant entities are required to report annually
How can we assist?
Outsourcing the advisory and compliance function – to a firm like Re/Think – is an efficient and cost-effective way to ensure regulatory standards are met at all times.
Depending on the nature of your business and your existing business operations, we assess the extent of support that may be required to ensure compliance under the FATCA & CRS regulations. Our scope of work includes:
- Advice in relation to obligation under FATCA/CRS regulations
- Assistance with registration process
- Assistance in implementing the FATCA/CRS obligations
- Ongoing filing requirements
Who are we?
Rethink is a team of highly skilled and qualified professionals, specialized expertise as a certified anti-money laundering specialist including a FATF trained legal expert examiner, experience across financial services industry and multiple related fields from reputable jurisdictions.
We are currently advisors to accounting and audit firms, corporate service providers, law firms, real estate agents and regulated entities within UAE. We also act as the appointed Compliance Officer for some of these firms.
Partner & Head – Regulatory & Compliance Services
Associate Director – Regulatory & Compliance Services