Financial Institution: Depository Institution
A Depository Institution is an institution that accepts deposits in the ordinary course of a banking or similar business.
HMRC will regard a person carrying out an activity in the UK that is a regulated activity for the purposes of the Financial Services and Markets Act 2000 by virtue of Article 5 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (accepting deposits) as a Depository Institution.
Entities within this definition will include entities regulated in the UK as a savings or commercial bank, a credit union, industrial and provident societies and building societies. In considering Article 5, HMRC will apply the relevant exclusions contained therein – for example, insurance brokers and solicitors would not be expected to fall within this definition. However in considering whether an entity is conducting banking or similar business, it will be the actual activities that the entity carries out that will be determinative.
The definition of a ‘banking or similar business’ is contained in the US Treasury Regulations for FATCA reporting purposes at section 1.1471-5(e) (2), and this definition also applies for CRS reporting purposes. An entity is considered to be engaged in a banking or similar business if, in the ordinary course of its business with customers, the entity accepts deposits or other similar investments of funds and regularly engages in one or more of the following activities:
- Makes personal, mortgage, industrial or other loans or provides other extensions of credit;
- Purchases, sells, discounts or negotiates accounts receivable, instalment obligations, notes, drafts, cheques, bills of exchange, acceptances or other evidences of indebtedness;
- Issues letters of credit and negotiates drafts drawn thereunder;
- Provides trust or fiduciary services;
- Finances foreign exchange transactions; or
- Enters into, purchases, or disposes of finance leases or leased assets.
Entities that solely provide asset based finance services, such as a factoring or invoice discounting business, or that accept deposits from persons solely as collateral or security pursuant to a sale or lease of property, a loan secured by property or a similar financing arrangement, between such entity and the person making the deposit, will not be Depository Institutions.
Entities that facilitate money transfers by instructing agents to transmit funds, including the provision of merchant’s payments accounts, but do not finance the transactions, will not be considered to be engaged in banking or similar business as this is not seen as accepting deposits.