The Foreign Account Tax Compliance Act (FATCA) is expected to radically alter how asset managers conduct business on a global scale. With final regulations to be issued in July 2012, financial institutions must take immediate steps to prepare for this game-changing legislation or risk stiff fines.

Not only does FATCA touch almost every asset management firm, but its changes will reverberate throughout all areas of a financial institution from compliance departments to IT to operations. FATCA is more than a tax issue. It is a global business issue and an enterprise-wide challenge.

In spite of the importance of compliance – and the heavy fines for non-compliance – financial institutions have been slow to ramp up for FATCA. The heightened due diligence and process changes required to meet the legislation’s complex documentation, withholding and reporting requirements are overwhelming. And, the cost of implementing FATCA is far-reaching. It spreads beyond U.S. taxpayers to the entire global financial services community – including fund managers – who will be saddled with the cost and responsibility of handling the bulk of the massive tax collection exercise.

The U.S. Treasury and IRS are expected to issue final rules for FATCA in July 2012 with requirements for documentation, withholding and reporting to take full effect by 2013. As FATCA looms near, the winners will be those asset management firms that can adapt quickly to new regulations and changing tax jurisdiction issues regardless of country.

To meet the new standards for regulatory compliance, asset managers need to put a best practice strategy in place.

This includes:

 • Establish an online tax book with the flexibility to prepare accounting data for tax assessments in numerous markets

• Consider a cloud infrastructure to quickly and efficiently implement tax rules and other regulatory requirements

• Replace manual procedures that can hinder due diligence with an automated solution capable of handling the mountain of reporting and withholding detail that FATCA requires

 • Categorize investment types and other relevant information according to FATCA specifications

• Implement reporting mechanisms that can group and extract specified share classes for auditing purposes

• Bring together disparate systems for more efficient data gathering

While the mechanics and technical details of FATCA are still unfolding, buy-side firms should start by assessing their existing processes, systems and operations and take steps now to identify gaps and remediate for compliance. Doing this is the difference between being FATCA ready or letting your institution face heavy loses or death by non-compliance.