Your Canadian Bank Closed Your Account Over FATCA: Why It Happened, What Was Already Reported, and How to Bank Again

The closure letter arrives after the questionnaire: the account holder disclosed US citizenship (or the bank found the indicia), and rather than manage the account under the FATCA regime, the institution ended the relationship. Why it happens, honestly: FATCA's intergovernmental agreement obliges Canadian financial institutions to identify US-person accounts and report them to the CRA — a compliance cost, but not in itself a reason to close; the larger driver for investment accounts is US securities regulation, under which a Canadian dealer serving a US-resident or, more cautiously, US-person client without US registration takes on regulatory exposure — many dealers respond by declining US persons entirely, and some banks apply the same policy to their brokerage arms while keeping deposit accounts open. Deposit accounts are rarely closed for US status alone; investment and self-directed brokerage accounts frequently are; robo-advisors and discount brokers vary by institution and by whether the client is US-resident or merely a US citizen resident in Canada. What the closure does not mean: it is not an IRS action, not an accusation, and not a report of wrongdoing — the bank made a business decision about a category of client. What was already reported: from the year the bank identified the account holder as a US person, the account's identifying details, year-end balance, and income figures flowed to the CRA under the agreement and onward to the IRS — and that reporting, not the closure, is the fact that matters for the account holder's compliance position. Registered plans are largely exempt from institutional reporting under the agreement's annex (RRSPs, RRIFs, TFSAs, RESPs, RDSPs are generally not reported by the institution), but the account holder's own FBAR and Form 8938 obligations for those same plans are unaffected by the institutional exemption — a distinction that surprises people in both directions. The closure's practical layer: the institution must return the assets — cash by transfer or draft, securities by transfer-in-kind to another institution or by liquidation — and for a taxable account, forced liquidation has tax consequences on both sides (Canadian capital gains, US capital gains at the US basis, the PFIC consequences of selling Canadian funds in a taxable account); negotiating an in-kind transfer window before the closure date is worth a phone call. Where US persons can still bank in Canada: the major banks' deposit and credit products generally remain available; several full-service and discount brokerages accept US-citizen Canadian residents (policies change — verify in writing before transferring); registered plans can generally be moved intact to an accepting institution; and US-resident former Canadians face a narrower field, since the US-residency trigger is the stricter one. The compliance question the closure forces is the real subject: the bank's report means the IRS has, or will have, the account in its data; the account holder who is compliant simply carries on; the one who is not has learned that the information channel is open and that the catch-up decision has a clock — the same sequencing the FATCA-letter guide lays out, with the closure adding urgency but not changing the route (streamlined remains available; a bank's action is not IRS enforcement contact). The go-forward design for a US person banking in Canada: deposit accounts where policies are stable; investment accounts at an institution that accepts US persons, holding US-listed or individual securities rather than Canadian funds to stay clear of the PFIC rules; the TFSA question answered honestly (usually closed for a US person); and the annual reporting calendar that makes the next bank questionnaire an administrative event.

Key takeaways

• It's a business decision, mostly about securities law: FATCA reporting is a cost; US securities registration exposure is what makes dealers decline US persons — deposit accounts usually survive, brokerage accounts often don't.
• The report already went: identifying details, balances, and income flowed to the CRA and the IRS from the year you were identified — the closure changes nothing about that; your compliance status is the live question.
• Registered plans are institution-exempt, not owner-exempt: the bank doesn't report your RRSP or TFSA under the agreement; you still report them on the FBAR and Form 8938.
• Negotiate the exit: an in-kind transfer window avoids forced liquidation and its two-country tax and PFIC consequences — ask before the closure date, in writing.
• US persons can still bank in Canada: deposit products broadly, investment accounts at institutions that accept US-citizen residents (verify current policy in writing), registered plans moved intact — a narrower field for US-resident former Canadians.
• The closure is a clock, not a route change: streamlined and the other repair procedures remain available; a bank's action is not IRS contact — sequence the compliance repair as the FATCA-letter guide describes, now with urgency.

The two-week closure response

Days 1-3: read the notice for the closure date and asset-return method; request an in-kind transfer window in writing. Days 3-7: identify an accepting institution (confirmed by email, not phone), open the receiving accounts, initiate the transfer for taxable and registered assets. Days 5-10: the compliance-state check — years filed, FBARs, the gap list — and the repair project scoped where gaps exist. Days 10-14: the go-forward portfolio design at the new institution (US-listed holdings, TFSA decision), and the reporting calendar. The assets move once, the tax consequences are managed rather than forced, and the compliance question stops being deferred by the very event that made it undeferrable.

Worked example

A dual-citizen dentist in Halifax receives notice that her discount brokerage is closing her self-directed accounts — a taxable account (C$310,000, mostly Canadian equity ETFs), an RRSP, and a TFSA — within sixty days because the firm no longer serves US persons. Her response, in order: a written request for in-kind transfer, granted; a full-service brokerage that accepts US-citizen Canadian residents confirmed by email; the RRSP transferred intact (no tax event either side); the TFSA — already a US-taxable account in her file — closed rather than moved, its Canadian ETFs sold with the PFIC consequences computed under her existing mark-to-market elections; the taxable account transferred in kind, then rebalanced over the following months from Canadian ETFs into US-listed equivalents to end the annual 8621 burden. Compliance check: she was current — the bank's reports matched her FBARs and 8938s — so the closure cost her a month of administration and nothing else. Her colleague at the same firm, same letter, non-compliant for a decade: the closure became the discovery moment the FATCA-letter guide describes, the assets transferred the same way, and a streamlined foreign-track submission scoped in the same month — because the institution's report had been flowing for years, and the closure was simply the first time anyone told him.

Official sources

FATCA "generally requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments." — Internal Revenue Service, Foreign Account Tax Compliance Act (FATCA), https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca

Under the Canada-U.S. agreement, "relevant information on accounts held by U.S. residents and U.S. citizens (including U.S. citizens who are residents or citizens of Canada) are reported to the Canada Revenue Agency (CRA). The CRA exchanges the information with the IRS through the provisions and safeguards of the Canada-U.S. tax treaty." — Canada Revenue Agency, Guidance on the Canada-U.S. Enhanced Tax Information Exchange Agreement, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/enhanced-financial-account-information-reporting/reporting-sharing-financial-account-information-united-states/guidance-on-canada-s-enhanced-tax-information-exchange-agreement.html

Practitioner note

Account closures are business decisions dressed as verdicts, and our response protocol separates the two: negotiate the in-kind transfer to avoid forced liquidation, move to an institution that accepts US persons (confirmed in writing, since policies shift), and treat the closure as the clock it is on the compliance question — because the bank's report has been flowing since the day you were identified, and the closure only tells you the channel exists.

See also: Browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the closure response — in-kind transfer negotiation, receiving-institution selection and account migration, the compliance-state check with repair scoping where needed, and the go-forward portfolio and reporting design. See cross-border pricing or book a call.