FATCA is the “Foreign Account Tax Compliance Act” passed by the United States government in order to eliminate (primarily high net worth) Americans using offshore accounts in order to hide assets from U.S. taxation: especially as the United States taxes all of its citizens on its worldwide income, no matter where in the world they live. FATCA was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act.
While FATCA has had significant effects on individuals, it is actually a law on financial institutions and doesn’t apply to individuals directly. The law requires all financial institutions worldwide to search through their current accounts and report the accounts they have that are owned by Americans. Should they fail to do so, the American government will withhold up to 30% on payments to these Foreign Financial Institutions (FFIs) originating from within the United States. Given the United States' situation as a hub for a multitude of financial transactions, the harsh (some might say draconian) penalties meant that FFIs went into overtime in an attempt to comply with the law. For smaller banks and institutions, without the resources to ensure ongoing compliance, this meant they scoured their records and likely eliminated Americans who might subject them to FATCA penalties. For larger banks, this generally meant they required further paperwork, restricted the services, or may have eliminated accounts offered to Americans.
While FATCA and its consequences explain why it has been so hard for Americans to open accounts in jurisdictions outside of the United States, they don’t explain why Schwab, Merrill Lynch, TD Ameritrade, Vanguard or other companies have made it so hard to open accounts in the United States for Americans who live outside of the United States. For information on that topic, we recommend reading our whitepaper Why is it so Hard to Open Accounts for Expats?