What is the impact of the newly signed FATCA on international finance?

FATCA (Foreign Account Tax Compliance Act) is a U.S. law that requires foreign financial institutions to report account information of U.S. taxpayers to the Internal Revenue Service (IRS) to prevent tax evasion. FATCA in Switzerland is implemented under "Model two," whereby Swiss financial institutions disclose account details directly to U.S. tax authorities with the consent of the relevant U.S. client. If the U.S. customer does not agree, the U.S. must make a request for information. On June 27, Switzerland and the United States signed the latest agreement on Foreign Account tax compliance Law, based on the existing "Model II" adjustment, after the adjustment, American clients in Switzerland lose the right to refuse. The new agreement will further strengthen cooperation between the two countries in combating cross-border tax evasion and help improve tax transparency and compliance. But the implications for financial institutions and clients in Switzerland and the United States will be profound.

First, the cost of institutional compliance has increased. First, systems and technology need to be upgraded. To meet the new disclosure requirements, financial institutions will need to upgrade or purchase advanced data management and reporting systems. At the same time, to ensure the security of customer information, there is also a need to invest in cybersecurity technologies and measures to prevent data breaches and cyber attacks. Secondly, the cost of human resources increases. Financial institutions may need to increase the number of people in their compliance departments to handle increasing compliance matters and reporting obligations. Employees will need to be trained in new regulations on how to collect, process and report customer information, which will incur additional costs.

Second, customer privacy is violated. On the one hand, the customer's financial account information will be disclosed to the tax authorities, which may lead to the customer's private information being shared with multiple government agencies, and privacy protection is faced with challenges. At the same time, information in the process of cross-border transmission, may face the risk of data leakage or improper use. On the other hand, customers may have less trust in financial institutions and fear that their personal information will be misused. If financial institutions fail to effectively protect customer privacy, brand reputation may be damaged, customer loyalty and market competitiveness may be affected.

Third, cross-border financial activities are restricted. Time costs increase. The process of compliance review and disclosure of information increases the time cost of transactions and can lead to transaction delays. Second, there is less investment selectivity. Due to increased compliance requirements and disclosure obligations, some clients may shy away from cross-border investments, leading to fewer investment options. Cross-border compliance requirements may restrict the free flow of funds, affecting the mobility and global allocation of capital. At the same time, clients may adjust their investment decisions and fund flows due to compliance requirements and disclosures.

In this regard, Swiss financial institutions should strengthen their compliance management, invest in compliance technology, and establish efficient customer information management and reporting systems to reduce labor costs and the risk of errors. To enhance transparency, financial institutions should communicate transparently with their customers to explain the impact and necessity of the new agreement and enhance customer understanding and support for compliance measures. Carry out strategic planning and strategic tax planning to legally optimize the tax burden and reduce the impact of new agreements.

The new FATCA agreement will have far-reaching implications for financial institutions and clients in Switzerland and the United States, not only in terms of increased compliance costs, customer privacy and cross-border financial activities. In order to meet these challenges, Swiss financial institutions need to strengthen compliance management and strategic planning, and the United States and Switzerland should strengthen international cooperation to ensure that the new regulations and policies can still provide quality services to protect the interests of clients.