It’s Usually Not the Rules — It’s the Questions That Weren’t Asked.
The problem (we see this a lot): Funds often work with service providers and counterparties expecting them to “handle FATCA and CRS”, and reasonably assume compliance will be completed correctly.
Most of the time, it is.
But when things go wrong, they can go very wrong.
As tax authorities become increasingly aggressive on filing requirements, deadlines, and — most importantly — penalties, financial institutions and fund managers must ensure they are not exposed by relying on untested assumptions.
While there are many reasons jurisdictions such as Cayman and Luxembourg can assess significant penalties, miscommunication is one of the easiest to avoid — and one of the most damaging when it occurs.
Failure to file when working with service providers
This is rarely a technical failure. It is usually a communication failure. Common causes include:
- The fund team does not realise lower-tier entities may be in scope
- The service provider assumes the structure chart captures all relevant interest holders
- No one explicitly asks:
- “Are there external interest holders in the holding companies?”
- “Do any GPs or internal entities have an economic interest?”
FATCA and CRS scoping too often relies on implicit assumptions rather than explicit questioning.
Failure to file by assuming it is someone else’s responsibility
We also see this arise during acquisitions. In one case, a fund acquired another fund manager and contractually agreed that the seller would remain responsible for FATCA and CRS reporting during the transition.
The reporting did not happen.
The tax authority subsequently assessed penalties in excess of USD 1 million.
The issue was not just communication — it was the absence of clear documentation, verification, and follow-up around responsibility.
The key takeaways
FATCA and CRS responsibility cannot be outsourced by assumption or contract alone.
Regulators look to:
- who the obligation legally sits with
- whether it was fulfilled
- whether it can be evidenced
Not who was intended to do it.
What fund teams should ask (even if they don’t know the rules)
Funds are not expected to be FATCA and CRS experts — but they should ask fundamental scoping questions.
At a minimum:
- Have all entities in the structure been assessed, including those below the main fund?
- Which entities were reviewed, and which were excluded — and why?
- Who is responsible for identifying new entities, acquisitions, or restructures?
- Where is this scope documented?
- If responsibility sits with a third party, how is performance verified?
If these questions cannot be answered clearly, there is a gap.
Why the right service provider matters
Good FATCA and CRS support is not just about filing.
It is about:
- knowing which questions to ask
- challenging assumptions early
- documenting scope and responsibility
- ensuring communication does not rely on memory or informal understanding
Providers that are not explicitly scoped and structured around FATCA and CRS often miss exactly these points.
Final thoughts
If your fund:
- has lower-tier or internal entities
- has completed acquisitions
- relies on administrators or counterparties for reporting
- has never formally documented FATCA and CRS scope
then it is worth checking one thing:
Can we clearly evidence that every relevant entity has been assessed — and that reporting responsibility is documented and monitored?
If not, the risk is already there.