Centralization of Certifications under FATCA and CRS at KYC Registration Agencies (KRAs)
Background:
Securities and Exchange Board of India (SEBI) has introduced a comprehensive framework for centralization of certificates related to the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) at KYC Registration Agencies, to promote ease of doing business. The regulator has directed intermediaries, who are reporting to financial institutions (RFI), to upload the certifications under FATCA and CRS obtained from the clients in the system of KYC Registration Agencies (KRAs) from July 1 2024.
The Foreign Account Tax Compliance Act (FATCA) is tax information reporting regime, which requires Financial Institutions (FIs) to identify their U.S. accounts through enhanced due diligence reviews and report them periodically to the U.S. Internal Revenue Service (IRS) or in case of Inter-Governmental agreement (a bilateral agreement between a country’s government and the U.S. government), to appropriate government authority.
The purpose of FATCA is to prevent U.S. persons from using banks and other financial institutions outside the USA to park their wealth outside U.S. and consequently avoid U.S. taxation on income generated from such wealth. FATCA-CRS oblige financial institutions to report information about U.S. persons having accounts with them.
Common Reporting standard (CRS) is a global level uniform standard for automatic exchange of financial account information. Under this standard, jurisdictions would obtain financial information from their financial institutions and exchange that information with other jurisdictions on an automatic annual basis. Similar to FATCA, the purpose of CRS is to aid automatic exchange of information between bilateral treaty partner countries about accountholders/investors maintaining accounts in foreign jurisdictions so as to avoid tax evasions on the funds parked in such countries.
The existing certifications obtained from clients prior to July 1, 2024 will be uploaded by the intermediaries onto the systems of KRAs within a period of 90 days of implementation of the new rule.
The onus of obtaining and reporting the FATCA and CRS certification and related compliances will lie with the respective intermediaries.
Intermediaries will have to confirm the reasonableness of such certification based on the information obtained in respect of account opening, including any documentation obtained in accordance with Prevention of Money Laundering (Maintenance of Records) Rules, 2005 and need to update the self-certification, as and when, there is a change reported by the client.
The KRAs shall develop their system/mechanisms, in coordination with each other and shall follow uniform internal guidelines/standards, in consultation with SEBI.
SW Point of View:SEBI’s effort to centralize FATCA and CRS certifications marks a substantial progression in the regulatory landscape overseeing financial institutions in India. This initiative, aimed at streamlining compliance procedures and improving the precision of tax residence data, is anticipated to have positive effects on intermediaries, clients, and the overall financial system. It aims to enhance efficiency and transparency in regulatory processes.
