The Foreign Account Tax Compliance Act (“FATCA”)

1. The Foreign Account Tax Compliance Act (“FATCA”)

2. FATCA • FATCA aims to identify U.S. persons* trying to avoid U.S. tax obligations by holding assets in non-U.S. structures and products • Foreign Financial Institutions (FFIs), which include CSDs, are invited to enter into “participating” agreements with the U.S. to: • Identify and annually report on U.S. accounts • Withhold 30% of withholdable payments made to “recalcitrant” accounts or non-participating FFIs • Have a responsible officer certify FFI’s compliance with the obligations under the agreement • U.S. withholding agents and participating FFIs are required to withhold 30% of withholdable payments made to recalcitrant (opposing) account holders or non-participating FFIs • * US persons in this context is much broader than simply Citizens

3. FATCA Summary • On February 8, 2012, the U.S. Treasury and IRS released the proposed regulations for the Foreign Account Tax Compliance Act (FATCA) • The goal is to ensure U.S. persons with financial assets outside the U.S. are paying U.S. tax • U.S. Financial Institutions will be required to withhold 30% on U.S. sourced payments to foreign institutions/entities that don’t comply – including gross proceeds of transactions

4. FATCA Who is Impacted and How • Non-U.S. entity that accepts deposits in conjunction with a banking or similar business, insurance company, engages primarily in the business of investing or trading securities, commodities, partnerships or any interests in such positions.  Broadly, all  non-US banks, broker dealers, insurance companies, pension plans,  mutual Funds, Hedge Funds and Private Equity Funds that holds financial assets for the account of others as a substantial part of its business will be FFIs • FFIs must comply with FATCA or be subject to negative impacts • 30% withholding tax which will apply to all payments of U.S. source income and gross proceeds, regardless of treaties or statutory exceptions • 30% withholding on certain foreign source payments, which may apply even when there is no direct investment in U.S. assets • Market pressure from counterparties and clients • The rules apply to all FFIs even if they do not have U.S. clients!

5. FATCA • Obtain information regarding each account holders to determine which (if any) of such accounts are U.S. accounts Identify U.S. accounts Obligations of a FFI Comply with due diligence procedures • Comply with verification and due diligence procedures required by the IRS/Treasury with respect to the identification of U.S. accounts Report annually for U.S. accounts • If the FFI maintains U.S. accounts, it must report on an annual basis certain account information to the IRS Withhold on passthru payments • The FFI must deduct and withhold a tax equal to 30 percent on certain payments to recalcitrant account holders (account holder that doesn’t provide valid documentation) and non-participating FFIs - RESERVED by the IRS Provide further information upon request • A FFI must comply with requests by the IRS/Treasury for additional information with respect to any U.S. account Obtain a waiver when necessary • If foreign law prevents the reporting of any information the FFI must attempt to obtain a waiver from relevant investors in a reasonable period of time or exit the account

6. FATCA Important Dates and Considerations • The draft FFI Agreement is expected by end of September • The US Government wants to finalize regulations by some time in November • New Form W-8 should be in place by the end of 2012 – now much longer • FFIs are expected to sign up by July 1, 2013 • If your organization is impacted by FATCA, preparing your processes and systems will take time • “Models (3) of Intergovernmental Agreement for Implementing the Foreign Account Tax Compliance Act to Improve Offshore Tax Compliance and Reduce Burden” that the IRS has already signed with Great Britain and will signed with other European Countries as well as with Japan

7. FATCA FATCA Self Assessment Questions If you answer YES to any of the following questions, FATCA will have implications for your organization. 1. Do you have any US issues eligible? US Securities (US ISIN) that are listed in your Stock Market and/or your CSD provides custody, settlement and corporate action services for those securities to your participants. 2. Does your CSD have any US issuers? In addition to your CSD, your Stock Exchange and your securities market have a US legal entity issuing debt instruments (local ISIN), or those US legal entities are operating in your market through a local issuer. 3. Do you or your participants have US account holders? Who are negotiating local securities.

8. FATCA FATCA Self Assessment Questions Con’t 4. Does your CSD have an account with DTCC or links with organizations that have accounts with DTCC? e.g. Euroclear, Clearstream or a Global Custodian 5. Does your CSD have any US dollar accounts in the United States? Where your CSD is receiving proceeds related with cross-border settlement and redemptions, interest or dividend payments on behalf of your participants.  6. Does your CSD or any its subsidiaries have shareholders with an ownership share of 10% or more? 7. Does your CSD have plans to expand business lines in the medium term (2-3 years) in areas such as cross-border or multi-currency settlement, operational linkages, market integration such as Mila, FX CCP, foreign securities collateral management, etc?

9. FATCA • PLEASE … • Examine the issue carefully in your own organization to understand how you may be impacted. • Think about how ACSDA members might work together/collaborate/share information to reduce the burden (financial and other) on your respective organizations. • Gather as much information as you can to better understand this complicated issue. • www. IRS.gov/FATCA