Partnership withholding regulations and the QI agreement: Impact on banks’ compliance and market offerings
In October 2020, the US Internal Revenue Service (IRS) published the final regulations under section 1446(f) of the US Internal Revenue Code (IRC) (hereinafter “final regulations”). The final regulations set out the detailed withholding and reporting requirements in relation to a non-US person selling an interest in a partnership that is engaged in a US trade or business.
In this blog, we summarise how the final regulations and the planned changes to the Qualified Intermediary (QI) agreement affect non-US banks that hold publicly traded partnership (PTP) interests in custody for their clients. We also outline why acting as a Nonqualified Intermediary (NQI) with respect to PTP interests, which is a common practice amongst various Swiss and Liechtenstein banks, may no longer be a feasible approach as of 1 January 2022.
After a very testing 2020, 2021 brings different kinds of challenges for independent asset managers (IAMs) and Trustees. Beyond managing the risks from the pandemic, IAMs and Trustees have to make sure they also bring their risk management and governance system up to speed with FINMA requirements, as spelt out in the raft of new rules in FinIA, FinSA, FinIO and FMIO-FINMA. Now is the time to act, as all the new rules are finally out and in place, with the last piece of the puzzle published in November by FINMA1.
Many IAMs are still in the process of getting their applications and organisations ready, and FINMA has only granted a few licenses so far, which means the bulk of the work is ahead for most organisations. Several things should be on IAMs’ and Trustees’ list:
The COVID-19 crisis is not a financial crisis and so it has had less of an impact on the financial sector than on many other sectors. Most financial service providers are well prepared for crises and well capitalised. However, the crisis is not yet over: the second wave of the pandemic is upon us, and a mass vaccination programme still some way off. The longer the crisis continues, the more the risk of loan defaults grows, so banks need now to be monitoring their capitalisation more closely, expanding their stress-testing tools, taking short, medium and long-term steps to boost their capital resources, and optimising monitoring of their loan portfolio.
Modern slavery is the third largest source of criminal profits globally with the majority of these profits passing through the global financial system undetected. Financial institutions have an important role to play to combat modern slavery in their own operations and with the clients and companies they provide services to. Expanding, updating and developing the necessary frameworks to identify actions and associated risks are vital to combat modern slavery.
The objective of the Net Stable Funding Ratio (NSFR) is to reduce liquidity risk over a longer time horizon by requiring banks to fund their activities from sufficiently stable sources. The new regulatory ratio will enter into force in Switzerland on 1 July 2021. What do Swiss banks need to do?
Prioritise climate risk management to protect your future: The impact of climate-driven regulatory initiatives on Swiss financial institutions
Swiss financial institutions will need to adhere to enhanced climate-risk disclosure obligations, in line with new ambitious targets for reducing domestic emissions of CO2. Companies operating in the financial services industry should take a proactive approach to understanding the implications of climate risk for their business and reporting requirements. They should also ensure that any reporting is assured by an independent third party to establish its reliability and gain the confidence of stakeholders.
Deloitte’s 2020 global survey on the OECD’s Base Erosion and Profit Shifting (BEPS) initiative shines a spotlight on the next wave of the Global Tax Reset. What are the key finding and impacts on the financial services industry?
The asset management industry has shown its resilience over the past decade and during the recent March sell-off. However, according to the joint committee report on risks and vulnerabilities in the EU financial system, published in September 20201, some sectors of the industry have struggled with redemption requests during the COVID-19 crisis. Bond fund outflows reached record highs during this period, amounting to 4% of the sector Net Asset Value (NAV). This follows prominent fallouts in previous years of various asset managers, and as a result fund liquidity has become a top priority for the entire fund industry.
In parallel, regulators across Switzerland and the EU have been tackling the liquidity issue by developing new regulatory requirements. In the EU, ESMA introduced a requirement having come into force at the end of September 2020 for asset managers to develop a comprehensive Liquidity Stress Testing (LST) framework for funds. In Switzerland, FINMA has carried out a consultation on a new financial institutions ordinance (FINIO-FINMA) requiring liquidity stress testing, currently expected to be adopted by end 2020.