The Core CRS / FATCA Principle: No Look-Through of Financial Institutions

The Core CRS / FATCA Principle: No Look-Through of Financial Institutions

At the heart of both CRS and FATCA lies a fundamental architectural rule:

Financial Institutions (FIs) are not treated as reportable persons.

This is not accidental—it is structural. In this episode, we unpack why the system is designed this way and why requiring look-through of Financial Institutions can undermine the logic of the framework.

🔎 The Structural Logic of CRS & FATCA

Under the Common Reporting Standard issued by the Organisation for Economic Co-operation and Development and under FATCA:

• Financial Institutions are Reporting Entities

• They are generally not Reportable Persons

• The system is designed to avoid duplicate and redundant reporting

The objective is administrative efficiency and clarity of responsibility.

🏗️ Why No Look-Through of Financial Institutions?

If a Financial Institution were required to look through another FI:

• The upstream FI would report

• The downstream FI would also report

• The same underlying individual could be reported twice

This would create:

• Duplication

• Administrative inefficiency

• Increased risk of inconsistent reporting

• Systemic complexity

To prevent this, the OECD framework allocates reporting to the FI closest to the reportable person—the institution best positioned to know its account holder.

📌 The “Closest FI” Principle

The OECD has repeatedly emphasized that reporting responsibility should rest with the Financial Institution that:

• Maintains the account

• Has direct access to the account holder

• Conducts due diligence

This ensures reporting is:

• Centralized

• Accurate

• Non-duplicative

⚖️ The Controversy in Practice

When an FI-trust is required to look through FI equity interests, as seen in certain interpretative approaches, the result may be:

• Reporting by the FI-trust

• Reporting by the institutional FI

• Potential duplication of the same underlying individuals

Critics argue that this outcome conflicts with the core CRS principle against redundant reporting.

Supporters may argue that such look-through enhances transparency—but it arguably shifts the architecture from allocation of responsibility to expansion of responsibility.

🎯 Key Takeaway

The CRS and FATCA systems are built on a simple but powerful structural rule:

Financial Institutions report — they are not reported on (in their capacity as FIs).

Requiring look-through of Financial Institutions risks:

• Blurring that structural boundary

• Creating duplication

• Departing from the “closest FI” reporting principle

Understanding this architecture is essential for trustees, compliance officers, and advisors navigating evolving interpretations of CRS and FATCA.