US markets to be shunned?!?

Overregulation, like a cheap hoe, can sometimes give the doer a little more than they bargained for. We’ve seen this a lot of times in the financial world; when Onion futures were banned, volatility was so insane that one of the lawmakers went bankrupt. Today, George Soros had to shut down SFM because of stricter regulations – something he was pushing for in the first place. Not that he needed the $1B, but you get the gist of it.

Financial news had an interesting article today along those lines; citing a recent KPMG survey about the repercussions of the US’ Foreign Account Tax Compliance Act, they made some intriguing observations:

39% of fund managers polled said Fatca would, or might, make them pull money out of the US equity market depending on how the rules are implemented. A further 45% said it would potentially stop them investing in the US fixed-income market. (Nearly a fifth of the respondents to the survey have more than €100bn in assets under management, so we’re not talking small potatoes here.)

Do you think this will really happen?

FACTA was one of those tiny laws that flew under the radar, aimed to corral tax evaders by requiring all foreign financial institutions to reveal all of the investments of their American clients. I mean really, who pays attention to that sort of thing?

Here’s where they say it gets complicated:

The main problem this poses for international banks is how they go about identifying which of their clients is American. It is not just a case of asking to see everyone’s passports. Almost unbelievably, a Swiss man who has a joint bank account with his American wife would, under the rules, be deemed a “US person” by the IRS. Pooled investments become a nightmare to unravel.

Any bank that can’t work out which of its clients is classed as American under the terms of the rules or doesn’t pass that information on to the US authorities will be slapped with a 30% withholding tax on every single transaction they make in the US.

KPMG is making a big deal out of this and efinancial’s editor wasn’t without drama either:

Could a law that was intended to reel in a few tax evaders end up causing a mass sell-off of US securities? Could it, even, one day be seen by historians as the straw that broke the back of US dollar’s global reserve currency status?

Bunk.

The US markets are just too big and way too important to ignore. Not to mention that possibility of this being enforced as they envision it is practically nil.

I am curious what the international monkeys have to add here though, is this really causing trouble for the banks and funds as they say? Or is this just mere sensationalism?

As I said, I don't think this will happen at all, but things across the pond or anywhere else could be totally different.

Have a good one WSO.