IEIM405116 - Penalties for Failure to Apply Due Diligence Procedures
Penalties for Failure to Apply Due Diligence Procedures
Reporting Financial Institutions are required to carry out due diligence in relation to all Account Holders in order to determine their jurisdiction(s) of tax residence. Reporting Financial Institutions or UK representatives will be charged a penalty of up to £100 for each Account Holder or Controlling Person in respect of which the required due diligence procedures have not been carried out.
Where the failure in question is a failure to obtain a valid self-certification required by the CRS or the FATCA agreement, the penalty is up to £300 for each Account Holder or Controlling Person for which a valid self-certification has not been obtained.
These penalties apply to failures occurring on or after 16 July 2025, the date that The International Tax Compliance (Amendment) Regulations 2025 came into force.
Failure to obtain a valid self-certification, regulation 22A(2):
Preexisting Accounts
The penalty for failure to obtain a valid self-certification does not apply to Preexisting Individual Accounts, since CRS and FATCA due diligence procedures do not require self-certifications to be obtained for Preexisting Individual Accounts.
In certain circumstance the due diligences rules for Preexisting Entity Accounts and in relation to Controlling Persons do require the obtaining of a self-certification. Where that is applicable and there is a failure to obtain a self-certification on or after 16 July 2025, a penalty under regulation 22A(2) may apply.
New Accounts
Where, exceptionally, a Reporting Financial Institution opened a New Account between 1 January 2016 and 15 July 2025 and failed to obtain a valid self-certification, a penalty under regulation 22A(2) will not apply.
However, in such cases a penalty for inaccurate or incomplete reporting may apply for returns submitted after 16 July 2025 [see IEIM405115]. For example, this could apply where account holders are reported without a TIN or correct tax residence, or where account holders are incorrectly excluded from a return, due to the absence of a valid self-certification.
See IEIM403125 for guidance on New Accounts opened for Pre-existing customers.
See IEIM405130 onwards for details of how the amount of any penalty will be determined.