Will China Thwart FATCA Progress?

May 15, 2013

iStock_000011926782XSmall[1]As the final version of the FATCA regulations have been passed and deadlines are fast approaching, global Foreign Financial Institutions (FFIs) are preparing their organizations to ensure compliance.  But, as China is still questioning whether they will comply with the legislation, some are wondering how this would affect the overall regulations.

From FATCA’s inception, China has been adamantly against the legislation, citing the enormous implementation costs, the little (if any) value to their country and the fact that complying could be in direct conflict with their bankruptcy and banking laws.  China’s other major concern is what non-compliance may do to their domestic financial institutions and their access to international markets.  If China continues to hold out, the fear is that this would trigger a domino effect of non-compliance.  If China doesn’t comply, for example, will Hong Kong or Macau?  What about other offshore banking centers in Asia and beyond? If the rules aren’t applied globally, are they valid for any country?

Since China’s inclusion is crucial to the effectiveness of FATCA, the U.S. has been working with them in recent months and it seems China has been more open to discussions.   Although these talks have been behind closed doors and specifics are not known, it has been reported that a key negotiating term is some type of information reciprocity from the U.S., which other countries have been pushing the U.S. for as well (ex: Germany).

The U.S. wants to see China commit to FATCA regulations and will continue to negotiate hard to make this happen.  Recent negotiations show progress, making FATCA’s relevance even greater.  If this deal is worked out, it is likely that many other countries will follow suit and therefore global financial institutions should begin preparing for compliance. 

What do you predict will happen with FATCA, and how is your organization preparing?

–  Sara Gilbert,  Regional Managing Director of Asia

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