What CRS and FATCA do
Both frameworks require the automatic exchange of financial account information with tax authorities.

• FATCA: US legislation focused on US taxpayers
• CRS: OECD global standard covering 100+ jurisdictions

Why entity classification matters
Classification determines:

• what due diligence is required
• whether the entity is reportable
• whether “look-through” reporting applies to controlling persons

  Misclassification often leads to incorrect reporting and compliance risk.

Who is involved
Two main groups:
1) Financial Institutions (FIs) – perform due diligence and reporting
2) Non-Financial Entities (NFEs/NFFEs) – provide self-certifications to FIs

Step 1: FI or NFE?
Start with the threshold question: Is the entity a Financial Institution?

If FI, identify the FI type (for example):

• Depository Institution
• Custodial Institution
• Investment Entity (often requires careful analysis)
• Specified Insurance Company

  If not FI → proceed to NFE assessment.

Step 2: Active or Passive NFE?
If the entity is not an FI, determine whether it is:

• Active NFE (primarily operating / trading)
• Passive NFE (primarily passive income or passive assets)

How “Passive NFE” is commonly assessed
An entity is typically Passive where:

• 50%+ of income is passive, and
• 50%+ of assets produce passive income

Passive income examples: dividends, interest, rents, royalties, annuities, portfolio gains.

Why Passive matters: Controlling Persons
If an entity is Passive, the FI must identify relevant controlling persons.
This drives the “look-through” reporting outcome and is a key risk area.

Best practice (what to document)

• obtain valid self-certifications at onboarding
• apply a reasonableness check
• keep a written classification rationale
• monitor changes in circumstances
• align CRS and FATCA analysis, but do not assume they are identical

CRS 2.0 – What Is Changing?

The OECD has updated CRS (often referred to as “CRS 2.0”) to address avoidance structures and crypto-assets.

Key developments:

• Expansion to cover Crypto-Asset Reporting Framework (CARF)
• Enhanced due diligence requirements
• Broader definition of Investment Entities
• Strengthened look-through rules
• More granular reporting data

Implementation timelines vary by jurisdiction, but financial institutions should expect tighter compliance standards and greater transparency requirements.