The US Internal Revenue Service has announced the changes that it intends to implement in the rules for non US banks to be Qualified Intermediaries as of 2010. The current rules require overseas banks who hold accounts for US persons and in which US assets are deposited to report these assets to the IRS.

Most foreign wealth banks active in wealth management signed such an agreement to take effect in 2001, many of them deciding to refuse to deal with US private clients in the process in order to avoid an error creating an awkward situation.

The changes announced are far less drastic than those proposed in July when the US authorities were up in arms about the Bradley Birkenfeld/ UBS  case, for instance in terms of identifying the underlying beneficial ownership of legal structures such as offshore companies that can be used to avoid the QI issues.

The main change is aimed at the auditors for the banks’ QI status. These audits will have to be supervised by a US auditor or by a firm that has a presence in the US that is implicated and has legal responsibility when the overseas arm of the firm signs off on the report. This will pose a problem for many banks. Of the main audit firms only KPMG currently asserts that the report is guaranteed by its US operation.

There is time to see how best to approach the new situation, but it is certain that the changes will make the QI audit process more expensive and complex and that it may result in more banks using synthetic products or even cancelling their agreements and avoiding US assets entirely.