PDF FATCA and CRS: how ready are you?

FATCA & CRS Readiness Survey

FATCA and CRS: how ready are you?

As we enter a new era in global tax reporting with increasing regulations around tax transparency, Thomson Reuters has gathered industry views from across the globe to piece together a full picture on the financial market's readiness for the Common Reporting Standard (CRS) and continued approach to the Foreign Account Tax Compliance Act (FATCA).

A broad range of senior executives from across the globe participated in the survey.

Who participated in our survey? C-level executives in the areas of:

Finance

Risk and liquidity

Financial crime

Compliance

Product management Project management

Accounting Tax

Working for:

Investment banks

Retail banks

Private banks

Wholesale and

transaction banks

Alternative investment managers

Fund managers

Consultancy Insurance

firms

firms

Private equity firms

Software & services suppliers

Analyst department

Legal

Trade Regulators associations

Structuring internal teams to prepare for the upcoming CRS regulations

Adding responsibility to an existing

centralised team

Creating one team that will handle both FATCA and CRS

Creating one team to handle FATCA and another

team to handle CRS

Outsourcing

Mix of inhouse and outsourcing

Multiple teams will have new responsibil-

ities

Client service team will be handling it

Locally by branch

Still deciding!

Preparation for FATCA and CRS

To prepare for the upcoming CRS regulations, internal teams need to be re-structured or new teams need to be created; relevant expertise should be added internally or outsourced where required. Undoubtedly, this is a significant challenge to implement successfully.

The results of the survey indicate that the most common approach here is to add responsibility to an existing centralised team. The second preferred option is to create one team that will handle both FATCA and CRS, though the third is to create two teams to individually handle FATCA and CRS separately. Across all of these approaches, the teams are ensuring the compliance function is centralised.

This is hardly surprising. A drive towards centralisation and streamlining the products, processes and systems has been embraced by the financial industry across the board.

This view is supported by BNY Mellon, the largest US withholding agent. Lorraine White, the bank's Head of Global Securities Tax Research, states: "BNY Mellon recognised very early that it was going to be essential to streamline processes as much as possible. We had an existing client onboarding team which we have augmented by the creation of a CRS centre of excellence that works closely with our FATCA teams."

But for many organisations, dealing with the issue purely in-house is not a viable option. Outsourcing also ranked highly.

A smaller number of survey participants said they have opted for a mix of in-house and outsourcing; distributing new responsibilities to multiple teams; handing the responsibility over to a client service team; or doing locally by branch.

Some said that they are still deciding on the appropriate approach of how to structure their teams for the upcoming CRS regulations. Financial institutions should act now to ensure reporting deadlines are met.

The biggest challenge from the changing regulatory landscape of FATCA & CRS

27%

24%

15%

15%

14%

5%

Keeping up with government regulations in multiple countries

Sourcing necessary reportable information

Managing internal resources

Reporting the data accurately and in a timely

manner

Keeping up with the changes

Ensuring the Other accuracy of data

Keeping up with government regulations in multiple countries is considered the biggest headache for senior financial executives. 24% of respondents however, cited the ability to source necessary reportable information as the biggest challenge.

Reporting data accurately and in a timely manner to local tax authorities and ensuring the quality of that data, were the largest challenges for a further 29% of the respondents.

"Financial institutions around the world are grappling with the timing and regulatory uncertainty of CRS," says Michael Drinkwater, Global Head of ONESOURCE (FATCA & CRS), Thomson Reuters. "About 100 countries have committed to CRS, though it is anything but a common reporting standard. The multilateral nature will further increase complexity."

Banks depend on their clients to provide the necessary information to identify customers that would be reportable for CRS purposes, BNY Mellon's White observes. "Across the industry, we envisage there could be a large number of undocumented accounts."

Changing the FATCA process to facilitate the validation of data on pre-existing accounts:

No changes

3V0%AL1I9D%AT51E%D

Changes expected and data validation has already begun

Changes expected but no solution for data validation in place yet

The validation on pre-existing accounts is clearly something banks and financial institutions should address, and that is likely to entail changes to the FATCA processes.

For over half the survey participants (51%), changes are expected and data validation has already begun.

Meanwhile, 19% anticipate changes but have no solution for data validation in place yet.

Systems and processes

We asked: do you currently have a software solution in place to cover FATCA, and if so, is it ready for CRS reporting?

No, we will outsource CRS

No, we have a manual workaround

11% 38%

32% 19%

Yes, covering FATCA and CRS

Yes, but only for FATCA

We asked: are you planning to build a solution in-house or work with a third-party solution to manage FATCA and CRS reporting and filings?

A mix of building inhouse and third-party solution

Other 6%

Building in-house

26% 46%

Other service provider

12% 10%

Third-party solution (accounting firm)

Our findings around systems and processes are mixed.

Less than 40% of the survey participants already have a software solution in place to cover FATCA which is also ready for CRS reporting. This means over 60% of respondents do not currently have a solution in place.

19% said their current software package only covers FATCA. And 11% said they would outsource CRS.

Mark Wilton, Senior Product Manager (FATCA & CRS), Thomson Reuters, comments: "Given the lack of clarity around CRS, as well as the shortening timelines, it is going to be challenging for institutions to be completely prepared. "But the clock is ticking, and the onus is clearly on tax departments to be ready. A key to ongoing compliance is to be sure they have implemented a robust and future-proofed solution."

In the case of BNY Mellon, the FATCA solution was built to be fully tailored to the US tax rules. "You cannot easily adapt FATCA software to meet CRS needs and in talking with my industry peers this view is widely shared,"White observes.

"Compliance with CRS requires a new way of looking at things, from process, systems, and importantly clear ownership of the various aspects from rules management, due diligence and reporting."

"I think this decision depends on your business model, product lines, customer base and geographical presence."

Costs

Expected spend on FATCA & CRS compliance in 2016:

+$100,000-$1m ? 40%

+$10m-$20m ? 4%

Up to $100,000 ? 42% So how much money are financial institutions planning to spend on FATCA & CRS compliance this year?

+$1m-$10m ? $20m+ ? 3% 11%

Only 3% are gearing for expenditure of $20+ million in 2016 and 4% are putting aside $10-20 million. 11% are going to spend up to $10 million to meet their FATCA & CRS compliance-related work.

The majority of the respondents, however, are budgeting for up to $1 million.

Confidence

Level of confidence in keeping up-to-date with individual government schemas and filing regulations (across the number of countries signed up for CRS):

Not confident at all 5%

Little confidence

14%

Neutral 37%

Confident 29%

Extremely confident

15%

Level of confidence in the accuracy of reportable account data in the system(s):

Not confident at all 0%

Little confidence

5%

Neutral 49%

Confident 36%

Extremely confident

10%

Only 15% of the respondents felt that they were "extremely confident" in their ability to keep up-to-date with individual government schemas and filing regulations. Those feeling "not confident", had "little confidence" and were "neutral" equates for 56%.

"Many countries are interpreting the CRS differently,"observes BNY Mellon's White."The biggest challenge has, and continues to be, the lack of clear and consistent guidance."

The solution? Continual monitoring and interpretation, and flexible systems in place that can be readily adapted to different rule sets.

The risk of non-compliance

Countries and jurisdictions most problematic regarding compliance:

UK Ireland US Canada Brazil

Poland

Cyprus

Luxembourg Switzerland Europe

Panama

Cayman Islands

High-risk countries (e.g. Afghanistan, Pakistan and Iraq) Hong Kong Vietnam Indonesia China India UAE

South Africa

Developing countries

Tax havens and offshore zones

Too early to tell! None

More than half of the respondents in the survey feel concerned that non-compliance may affect their institutions' reputations.

"Being non-compliant could be extremely damaging to any bank," says BNY Mellon's White. "We have always maintained our full support of governments' objectives in this area."

The key issue here is how non-compliance is measured, she feels. "Tax authorities have still not provided any indication of audit regimes to monitor compliance and despite the best solutions that banks have, we are dependent on our clients providing the necessary information to identify customers that would be reportable for CRS purposes."

She continues: "Across the industry, we envisage there could be a large number of undocumented accounts but we are not clear at this stage whether governments would view this as non-compliance."

Challenges and concerns

53% say YES

Concerned about FATCA & CRS non-compliance affecting the institution's reputation?

47% say NO

Main concerns about FATCA & CRS:

Financial

The lack

Time and resources required for various reporting formats

penalties

Client confusion on documents

needed and

The impact on customer

trust

Reputational risk

of clarity as to detail

The lack of appropriate

software

Differences in legal, internal and

inter-company interpretation

The lack of uniform adoption

of CRS

getting customers to respond in a timely manner

The lack of data, data inaccuracy or not

Tax authorities don't seem to know themselves how to manage such a global

The lack of clarity from regulators

regarding terminology and

characteristics

Difficulty on a country-by-country

basis in setting expectations, deadlines, filing protocols etc

Costs of compliance against

risk of noncompliance

being able to get the data out of the system

change

Data security

The lack of expertise in smaller

Limited test facilities

High development/

operational cost for very low volumes of reportable data

Keeping up with the regulation

change

organisations

Low levels of understanding and engagement form

affected parties

The lack of centralised solutions to handle tax forms

The survey participants' concerns about FATCA and CRS were varied ? from IT issues (such as the lack of adequate software and limited test facilities) and data security, to costs, financial penalties, the lack of clarity and resource constraints.

White sees data quality as a major pain across the banking industry. BNY Mellon is really focused on this, she notes, "but I hear consistently that data quality is a concern for many other banks".

The challenge is bringing data from many different sources, product lines and various locations and systems. Sourcing and cleansing this for reporting is not easy and can't always be automated.

"It isn't surprising that the biggest concerns relate to readiness, execution and compliance. Though institutions need not tackle these alone," adds Thomson Reuters' Drinkwater.

Regulatory change and uncertainty

On 14th April 2016, the G5 announced a commitment to the automatic exchange of beneficial ownership, and called on the G20 to adopt this more widely.

This suggests that the Organisation for Economic Co-operation and Development (OECD) may help define and create a common process that could see tax and law enforcement agencies exchange data on company beneficial ownership registers and new registers of trusts, allowing for more effective investigation of financial wrongdoing.

New regulations, shifting goal posts and continued uncertainty will continue to challenge financial institutions and their ability to remain compliant.

As businesses go global, pressure is increasing to adopt a worldwide set of financial reporting standards. Evolving international tax regulations, like FATCA and CRS, are challenging organisations around the world to implement new procedures to maintain compliance. The aim of this report is to piece together a full picture to reflect the market's readiness for CRS and approach for FATCA conformity.

Thomson Reuters is your foundation in a changing world. We stay one-step ahead of global tax regulations so you can futureproof your reporting strategy. With 25 years of experience in global tax reporting, we have the knowledge and expertise to assess and improve existing reporting solutions.

Thomson Reuters ONESOURCETM drives global tax compliance and accounting decision-making with the industry's most powerful portfolio of corporate technology solutions, including purpose built FATCA and CRS compliance functionality.

To learn more visit tax.fatca-crs

Contact us:

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+44 207 375 6869

+1 888 885 0206

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