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Achieve Greater FATCA and CRS Compliance More Efficiently

Foreign Account Tax Compliance Act (FATCA) 2016 deadlines may have passed, but financial institutions (FIs) can achieve Common Reporting Standards (CRS) and FATCA compliance more easily in 2017 using data and technology, as well as lessons learned from 2016.

Pre-existing Account Review Process Is People-Intensive

FIs were expected to review their pre-existing accounts (a financial account opened prior to July 1, 2014) to document their account holders’ FATCA status during 2016. Once the accounts’ FATCA statuses are established, FIs would monitor the accounts for any change in circumstances. Many organizations went to great expense and effort to meet this goal with varying results. 

Using data and technology to classify account holders for FATCA and CRS can absorb a significant amount of the heavy lifting associated with manual account holder documentation outreach and remediation.
 

Account holders have typically been documented by FIs who manually sent communications and waited for the accounts to send back IRS Tax Forms W-9 or W-8. If FIs received a 60% response rate from their pre-existing account holder after multiple solicitations asking for the proper documentation, they were doing better than many of their peers. In addition, from what was returned to FIs, non-US account holders’ IRS Tax Form W-8s were often not completed to IRS standards, thus further reducing the effectiveness of the outreach.

Public Data and Technology Solutions Alleviate Outreach Burden

What is an FI to do with the large percentage of non-responsive pre-existing account holders—often 40% to 50%—that haven’t provided appropriate documentation to establish FATCA status? One alternative FIs have found effective is relying on publicly available information, particularly for offshore account holders (accounts maintained outside the US). The use of publicly available information has enabled them to significantly reduce the outreach burden and achieve greater compliance.

Data-driven technology solutions have been even more successful. By using a combination of the right technology and data, some FIs have been able to classify more than 90% of the non-classified account holders. Of the 90% classified using technology and data, more than 65% did not require further outreach. 

FACTA Compliance

While it’s true that the initial deadline to have pre-existing account holders documented occurred in 2016, the IRS has stated that FIs need to make “good faith efforts” to comply with FATCA. That means if there are account holders still not documented, an FI should still be trying to document them. FIs can continue to reach out to account holders as they have been, or they can look for alternatives to account holder outreach in order to achieve compliance. An approach that classifies entity account holders with publicly available information and data technology can greatly reduce the non-documented accounts, and it's still not too late to achieve greater FATCA compliance.

For CRS, pre-existing accounts are to be reviewed and classified by December 31, 2017 in early adopter countries. Early adopters are those accounts that were opened prior to December 31, 2015. Applying lessons learned from FATCA, an FI can classify account holders using publicly available information prior to their initial client outreach, reducing the need for solicitation while meeting regulatory requirements.

Global Investment FI Automates FATCA and CRS Compliance, Achieves Significant Efficiencies

A Tier-1 global investment FI used publicly available information and technology to effectively automate its pre-existing and new account holder documentation procedures for FATCA, and it is now applying these lessons learned to CRS. The results for the FATCA pre-existing account review were significant. Of the 160,000 entity account holders reviewed in the batch, 130,000 accounts were classified using existing available data. This significantly reduced the outreach burden and gave the FI substantial process efficiencies. The FI then deployed the technology to more than 200 professionals for new client FATCA and CRS onboarding, resulting in further compliance and efficiency gains through a new account onboarding process. The FI also automated change in circumstance monitoring for those account holders classified with the data, which relieved the manual effort required to maintain status. 

By using a technology tool that classifies account holders with third-party data and tax regulatory insight for the bulk of its FATCA pre-existing account population, this FI improved its FATCA program's efficiency and achieved greater compliance. According to a FATCA Project Management Office at the institution, “the FATCA classifier tool and the associated process was the most effective aspect of the FATCA compliance program.”

Data Combined with Insights: An Automated Approach to Documenting Account Compliance

An FI can recreate what was done for FATCA and apply it to CRS, or it can look for alternative approaches that have proven efficient and effective. Classifying account holders with publicly available information can complement and improve traditional approaches. Specifically using technology that has third-party data, combined with tax and regulatory insights to automatically classify account holders, has proven to be very effective. Doing so enables FIs to minimize the costly and error-prone client outreach phase. It can reduce the time and resources required to achieve greater compliance and can drive greater consistency in classification. It also reduces the need to repeatedly contact account holders with requests to fill out tax forms.

Using data and technology to classify account holders for FATCA and CRS can absorb a significant amount of the heavy lifting associated with manual account holder documentation outreach and remediation. The classification process can be applied to new client onboarding, as well as large numbers of pre-existing entity account holders. The approach can be set up to complement and enhance existing manual processes. By automating the process, FIs can quickly and easily identify records that can be classified without outreach, leaving them additional time to focus on the more challenging entity classifications that require more in-depth attention.

An FI can greatly improve upon relying solely on the traditional approach of manually sending out documentation requests to account holders and tracking responses. Using data-driven technology, an FI can quickly search databases, apply tax logic, and assign a status that does not require burdensome outreach. This approach can greatly improve compliance and process efficiencies, while reducing manual efforts required for documentation.

 

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