Custodial Institution Settles a Cook Islands Trust

Can a custodial institution legally settle a Cook Islands trust—and what does that mean for FATCA and CRS reporting? In this episode, we walk through the reporting hierarchy step by step, explain where reporting stops, where it continues, and why confusion often arises when institutional settlors are involved.

🔎 Key Definitions & the Reporting Hierarchy

• Reportable Person

Under FATCA (U.S.) and CRS (non-U.S.), a Reportable Person is typically:

– An individual, or

– A Passive NFE with individual Controlling Persons

➡️ Financial Institutions are generally not Reportable Persons

• Financial Institution (FI)

Includes Custodial Institutions, Depository Institutions, Investment Entities, and certain insurance companies.

➡️ These are Reporting Financial Institutions, not Reportable Persons.

• Custodial Institution

An FI that holds financial assets for others as a substantial part of its business.

• Settlor of a Trust

The person or entity that legally establishes the trust and contributes assets.

➡️ The settlor’s identity is central to the trust’s reporting analysis.

🔎 Reporting Logic for the New Trust

i. Identify the Settlor

The legal settlor is the Custodial Institution Trust, as evidenced by the trust deed and asset transfer.

ii. Classify the Settlor

The Custodial Institution Trust is a Reporting Financial Institution.

iii. Apply the Account Holder Test

For trusts, the settlor is treated as an Account Holder.

The trust must then determine whether that Account Holder is a Reportable Person.

iv. Reporting Conclusion

Because the settlor is a Financial Institution, it is not a Reportable Person.

➡️ The new trust therefore has no obligation to look through the institutional settlor to underlying individuals.

Result:

The reporting chain stops at the institutional level for the new trust.

The trust reports the Custodial Institution Trust as settlor and classifies it as an FI (using a GIIN for FATCA or jurisdiction of residence for CRS).

🔎 Where Reporting Actually Occurs: The “Push-Down” Principle

Even if the Custodial Institution is located in Svalbard and does not report locally, the information is not lost.

As a Reporting Financial Institution, the Custodial Institution Trust must:

• Perform due diligence on the original individual

• Determine whether that individual is a Reportable Person

• Report that individual under FATCA or CRS, where applicable

➡️ Reporting responsibility is reallocated upstream to the institution that directly holds and administers the assets.

🎯 Key Takeaway

This structure does not eliminate reporting—it reassigns the reporting obligation within the FATCA/CRS framework. Authorities focus on:

• Legal settlor status

• FI classification

• Account holder rules

• Substance and control

Any arrangement designed to defeat reporting can trigger re-characterisation, challenge, or enforcement.