CRS Treatment of Financial Institutions as Equity Interest Holders

This episode examines a core structural rule of the Common Reporting Standard (CRS):

Financial Institutions are non-reportable persons and must not be looked through for due diligence purposes.

We analyse the relevant CRS provisions and explore why this principle is central to the reporting framework.

🔎 The CRS Due Diligence Architecture

Under the CRS issued by the Organisation for Economic Co-operation and Development, reporting obligations are carefully tiered.

Only Reportable Accounts are subject to due diligence.

This distinction is fundamental.

📘 CRS Textual BasisCRS, p. 38 – Pre-Existing Entity Accounts

The Standard states:

Only reportable accounts are subject to due diligence.

It further clarifies that accounts held by non-reportable entities—including:

• Financial Institutions (e.g., custodial institutions)

• Central banks

• Government entities

• International organisations

• Regularly traded corporations

—are not subject to due-diligence procedures.

CRS, p. 41 – New Entity Accounts (Section VI)

Section VI requires a determination of whether an entity account is a reportable account.

Where the account holder is a non-reportable entity, including a Financial Institution:

➡️ The entity must not be looked through.

The due diligence obligation ends at that level.

🧱 The Structural Principle

The CRS is built on an allocation model:

• Financial Institutions report

• They are generally not reported on (in their capacity as FIs)

• Look-through applies to Passive NFEs—not to Reporting FIs

This prevents:

• Duplicate reporting

• Administrative inefficiency

• Confusion over responsibility

⚖️ The Interpretative Question

Against this background, debate arises where guidance suggests that FI-trusts should look through entity equity holders—even where those entities qualify as Financial Institutions.

The textual question becomes:

If the CRS explicitly states that non-reportable entities must not be subject to look-through, can administrative interpretation require otherwise?

Critics argue this creates tension with:

• The no-look-through rule for non-reportable entities

• The structural allocation of reporting responsibility

• The prohibition against duplicative reporting

Supporters argue the approach enhances transparency.

🎯 Why This Matters

This is not a narrow drafting issue—it affects:

• How FI-trusts classify equity interest holders

• Whether FI status acts as a reporting “blocker”

• The integrity of the CRS due diligence hierarchy

At stake is a foundational principle:

Non-reportable entities, including Financial Institutions, are not subject to look-through under CRS due diligence rules.

Understanding this architecture is essential for trustees, compliance officers, and advisors operating across jurisdictions with divergent interpretations.