With the dawn of a new year, and more countries having signed up for regulatory reporting under the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS), financial institutions are gearing up for the next round of reporting aimed at enabling revenue authorities to maximise the collection of targeted taxes due.
Prudential Regulatory Reporting is normally the task of a financial institution’s compliance function, supported by technology and risk management teams, in order to drive compliance assurance. Critical to the success of regulatory reporting is the ability to generate client data that is accurate and complete. Some service providers offer technology options to help financial institutions in their compliance with licensing and prudential requirements. These technology solutions are often modular in nature to cater for regulatory reporting required for the different pieces of legislation of a particular jurisdiction.
For FATCA and CRS reporting, January is an ideal time for financial institutions to review their regulatory reporting process and resource allocation to prepare for midyear reporting. Important considerations could include whether to:
- keep the FATCA/CRS operations component in-house
- use artificial intelligence (AI) in operations, e.g. AI-enabled quality control and quality assurance or AI-enabled digital and data security
- have dedicated teams per piece of legislation or consider whether to create multi-skilled teams that are able to attend to regulatory reporting requirements across the compliance landscape
- contract with a third party service provider, such as JTC, which renders an option to pay only for actual time spent on regulatory reporting activities.
Once the regulatory reporting model has been revisited and enhanced, the focus would typically shift to an assessment of client data (and document) integrity. As the legislation requires that an accountholder of a Financial Institution must make a declaration to the Financial Institution for purposes of regulatory reporting, the financial institutions must collect and maintain complete and accurate accountholder information. Once the client has completed the FATCA/CRS forms, the onus for accuracy of reporting is on the financial institution. Accurate data, appropriately skilled staff and effective technology solutions are therefore key considerations that ultimately determine the reporting quality of a financial institution.
With FATCA and CRS now firmly entrenched in compliance models, arguably at a level equal to anti-money laundering and anti-bribery/corruption frameworks, financial institutions need to re-use data created at on-boarding stage for reporting purposes. It is therefore important that static and transactional data are collected and maintained in the most effective way if the aim is to eventually automate the reporting process.
The advent of regulatory reporting was initially met with apprehension and may even have been perceived by some people to be an act of ‘blowing the whistle’ on one’s client. However, with countries now acknowledging the importance of tax base optimisation by all revenue authorities, even more so for developing countries, participating jurisdictions are more willing to work together and live the spirit of the FATCA/CRS legislation.
It is in their own interest that financial institutions assess their regulatory reporting enabling frameworks; they must ensure that they operate within the confines of regulatory requirements when they prepare and share their accountholder information in accordance with the FATCA/CRS regulatory requirements. Both over- and under-reporting would be frowned upon by the relevant revenue authority as well as the accountholder. When the accountholders provide their information to a financial institution, they expect that the institution will use their information to comply with the law. Financial institutions should ensure that their FATCA/CRS frameworks are adequately resourced from a technological and skilled resource perspective and that liaison with accountholders is comprehensive and timeous throughout the relationship lifecycle.
JTC undertakes regulatory reporting for financial institutions on an outsourced basis, which helps to relieve compliance pressures and provides cost-efficiencies. For more details about how JTC can help, please get in touch.
The status of FATCA/CRS implementation by various countries is included below for ease of reference.
The status of CRS Commitments and Exchanges of Information can be found on the OECD website https://www.oecd.org/tax/automatic-exchange/commitment-and-monitoring-process/AEOI-commitments.pdf
The status of FATCA agreements and understandings can be found on the IRS website
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