The impact of FATCA on the banking industry in Malta

Abstract

Purpose:The main goal of this study is to establish what the FATCA regulations entail in order to be implemented in the local scenario, as well as how banks and the regulatory authorities are going to be affected by this new regulation. Design: The above aims were achieved through face-to-face semi-structured interviews with the affected parties, being ten local credit institutions, three audit firms (being the local banks' consultants), and the Maltese regulatory authority. Findings:The study revealed that although the Maltese banking industry is well aware of FATCA, there are some variations in the level of awareness and preparedness, with the larger banks being the most aware and prepared. FATCA does not seem to have an impact on Maltese banks' client business strategies but there is uncertainty with regards its impact on their business strategies with correspondent banks. However, FATCA has a negative impact on the banks' operational and compliance risks, given the required system changes. It has emerged that compliance costs are not that significant relative to other costs incurred. The regulatory authority also needs to ensure that it has safeguards to guarantee confidentiality of information and the infrastructure for an effective exchange relationship with the US. Overall, banks perceive FATCA as just a regulatory challenge with no particular benefits but acknowledge that, on a national level, Malta will benefit from such a regulation because it increases transparency with respect to local tax compliance and enhances the Maltese reputation as a transparent jurisdiction. Conclusion: This study concludes that FATCA requires local banks to change their current policies, procedures and systems to detect and report on US customers. Such task is proving to be a challenging task for banks. However, FATCA is expected to serve as an essential tool in detecting, deterring and discoursing offshore tax abuses through the use of foreign accounts. Thus, exchange of information is increasing its significance. Value:This study surfaced the challenges Maltese banks and the regulatory authority are facing as a result of FATCA and creates greater awareness on the significance of measures on the banking industry to increase tax transparency.