What is it?
The Foreign Account Tax Compliance Act (FATCA) is a piece of legislation introduced by the United States (US) in 2010 which was then implemented in the UK in 2012 as part of a UK-US Inter-Government Agreement (IGA) to improve international tax compliance. Its primary goal is to help prevent tax evasion by US citizens holding foreign (in our case, UK) financial assets. FATCA effectively requires financial institutions to report data on US tax residents to the US Internal Revenue Service (IRS).
Exemption 1: Non-Registering Local Bank
The vast majority of Credit Unions in the UK are eligible for an exemption from FATCA reporting, provided that they comply with the following requirements:
• They must not have a fixed place of business outside of the UK (unless solely administrative)
• They must have policies and procedures prohibiting the solicitation of customers outside of the UK.
• They remain under $175 million in total assets. This works out to be around ~£127 million at the time of writing (as the pound hits a four-year high in January 2026).
Where credit unions meet these requirements, they are classified as ‘Non-registering Local Banks’. This is a detail that often only becomes relevant when a credit union is asked to declare this status when opening bank accounts with firms that subject to FATCA.
It is also the case for credit unions that the AEOI (Automatic Exchange of Information) has generally dominated the discussion around international tax compliance due to the lack of an exemption for most credit unions, and, for many, the fact that it is far more likely that members will be tax resident of one of the 123 countries signed up to the AEOI than be a US citizen or tax resident.
All credit unions should record their continuing eligibility for the exemption and note the non-foreign member solicitation clause in their policies. This generally doesn’t cause much trouble for credit unions, as most have GB-only common bonds. This is by far the easiest exemption to apply, but it is not an option for those over $175 million in assets.
For those approaching the asset threshold, they should ensure that controls are in place to negotiate compliance ahead of time. In particular, you should consider whether you will need to report under FATCA or if another exemption might apply (see below)
Exemption 2: Non-Reporting Financial Institution (NRFI) with a local client base
For credit unions which are over the asset threshold for the exemption laid out above, there is another option to be classified as a ‘deemed compliant financial institution’, and therefore not required to report under FATCA. The conditions for this exemption may seem only marginally less onerous than reporting under FATCA itself and are set out below.
The credit union must meet the following requirements:
1) Be authorised and regulated in the UK
2) Have no fixed placed business outside of the UK (see above)
3) Do not solicit potential members outside of the UK.
4) Be required to report information under tax laws or withhold tax; or identify whether account holders are resident in the UK as part of AML/KYC procedures.
5) Have 98 percent of accounts values held by people who reside in the UK
6) From 1 July 2014 not provide accounts to:
a. non-UK resident US persons (including those who were resident in the UK but subsequently leaves).
b. Non participating financial institutions
c. Passive non-financial foreign entities with US Citizen or tax resident controlling persons
7) On or before 1 July 2014 implement policies and procedures to establish and monitor whether it provides accounts to the persons described in 6). If such accounts are discovered these must either be reported as if the credit union is a reporting UK financial institution, closed, or transferred to a participating financial institution.
8) Perform due diligence on all non-UK resident accounts opened prior to policies and procedures described in 7) above to check for US specified Persons. This due diligence should follow the procedures set out within the Annex 1 of the US-UK IGA. Any identified reportable accounts are to be closed or reported as if the credit union were a reporting UK financial institution.
9) Ensure that related entities must meet all the requirements above.
10) Not have policies or practices that discriminate against opening or maintaining accounts for US persons who are residents of the UK.
Please note this is a condensed version so please see the HMRC manual for the fuller text if you’re considering this option.
Near or over $175 million – what to do?
What isn’t explained within FATCA or HMRC manuals is what happens when financial institutions exceed the $175 million asset threshold criteria of the first exemption. Credit unions may wish to apply the second exemption outlined above, or comply with and report under FATCA, but in either case, it is impossible to meet due diligence and reporting deadlines set in the past such as those requiring credit unions to review their membership for US Specified persons back in July 2014.
Due Diligence
We have discussed this informally with the HMRC who suggest that it would seem reasonable to interpret the dates set out above, as meaning the date that the credit union falls within the definition (or potentially out of the first exemption). HMRC also note that with the timing of due diligence described above it would need to be carried out in time to allow any necessary reporting under FATCA by 31 May (the reporting deadline) following the calendar year which the threshold was crossed.
Identifying US Specified Persons
There’s a great deal of crossover between the Automatic Exchange of Information (AEOI) and FATCA. They are both requesting financial information about foreign tax residents who have an account open in the UK. As such, credit unions should already have their account opening processes designed to identify foreign tax residents and obtain their tax identification numbers. However, the US is one of a very small group of countries that has a citizenship-based taxation system.
Our contact at HMRC noted that many US citizens, are unaware that they are tax resident in the US. As a result, it was their point of view that a specific question or reference to US citizenship should be built into account opening processes to help with FATCA compliance.
Even if exempt from FACTA there is still reporting requirements under AEOI.
Disclaimer
FACTA is an extremely complicated area and the above only covers some of the rules. The content of the above article is an opinion and not intended to be formal, professional or legal advice. It is not intended to address to specific circumstances of any particular organisation and is not necessarily comprehensive, complete, accurate or up to date.