FATCA: Sub-Certifications as Part of FATCA Compliance
In anticipation of the IRS implementing its online FATCA certification process, now is the time to consider internal FATCA sub-certifications.
The FATCA regulations do not require a sub-certification process. However, sub-certifications can be a useful part of the internal control process under a Foreign Financial Institution’s (FFI’s) FATCA policies and procedures.
FATCA permits a Responsible Officer (RO) to delegate compliance tasks to other personnel. The RO may require that such personnel complete sub-certifications to provide assurance to the RO that the assigned compliance tasks have been completed.
The RO may also delegate FATCA tasks to third-party service providers. Generally, a third-party service provider will not provide a compliance certification to an FFI. From the third-party service provider’s perspective, it has entered into a service contract with the FFI agreeing to undertake FATCA compliant services. Thus, no further certification is necessary.
However, the RO may look to the internal staff member who is responsible for managing the third-party service provider’s FATCA services to provide the RO a sub-certification that the staff member has not encountered any compliance issues with the service provider.
How Many Levels?
The RO may require that periodic certifications be provided to her by the head of each business unit or supporting corporate function to ensure that the business unit has complied with the FFI’s written FATCA policies and procedures.
The determination regarding what level sub-certifications are made will vary across FFIs. Be aware that the more tiers of management from which the RO requires a sub-certification, the more time she will need to receive responses. The RO should keep in mind that requiring self-certifications from an unusually high number of employees can result in a watering down process where no individuals feel accountable for delegated tasks.
Drafting the Sub-Certification
A sub-certification should be specific to the individual employee’s FATCA responsibilities as outlined in the FFI’s policies and procedures. The sub-certification should be written in plain language. Writing a document which is too broad or written in “legalese,” will undermine its effectiveness.
The sub-certification should be specifically tailored to the FFI's particular business and organizational structure.
Establishing a sub-certification process can be an effective tool that goes beyond a one-time piece of paper. It can reinforce a corporate culture of good internal controls and identify training gaps.
However, the RO should never lose sight of the fact that she is ultimately responsible for FATCA compliance and must take an active role in achieving such compliance.
Draft or update FATCA policies and procedures as soon as possible. [Although this blog post discusses FATCA certification, do not neglect drafting CRS policies and procedures!]
Draft FATCA sub-certifications.
Prepare a memo / standard e-mail to accompany sub-certifications to explain why the RO is requesting it.
Send out a reminder after giving employees a reasonable amount of time to sign and return the sub-certifications.