APAC institutions unprepared for global FATCA
21 January 2016 Singapore
Image: Shutterstock
Financial institutions in the Asia-Pacific region are unprepared for global tax reporting requirements, according to a report by Wouter Delbaere, Asia-Pacific market manager for regulatory reporting at Wolters Kluwer Financial Services.
The majority of APAC jurisdictions have committed to sharing tax information under the Automated Exchange of Information (AEOI), sometimes referred to as the global version of the US Foreign Account Tax Compliance Act (FATCA), by 2018. India and South Korea have agreed to begin sharing information a year earlier.
However, a survey by Wolters Kluwer Financial Services and the GRC Institute found that over 90 percent of financial institutions have not yet started implementing solutions, and have no global teams in place to address the requirements. Almost 60 percent said they have not yet discussed their strategy for AEOI internally.
The report also found that the majority of institutions are using manual processes for their current FATCA requirements. Almost 90 percent are taking either a completely manual or semi-automated approach to FATCA reporting, and more than half are relying on a completely manual solution.
Delbaere said: “This approach is inherently risky. Not only is it error-prone and time-consuming, there are also shortcomings in user and version control.”
“Manual spreadsheets enable business users to easily visualise and organise data, however, this flexibility comes at a price. Freely making changes to the data, formulae and formatting opens the door to errors, inaccuracies and inconsistencies, without any corresponding audit trail.”
According to Delbaere, the new AEOI regulation will mean additional data requirements, increased cross-border coordination and more, and more complex, client information reporting.
This manual approach to FATCA limits scalability, and will become impractical for managing AEOI requirements. Although it may work for FATCA, because the regulation applies to a limited number of accounts – those with connection to the US – AEIO applies to more than 100 jurisdictions.
Delbaere said: “Taking a tactical approach for FATCA reporting – be it completely manual or semi-automated – significantly increases the risk of being caught out by tax, and with the financial institutions’ reputation at stake, any form of regulatory compliance should not be taken lightly.”
The report also noted that the US still intends to apply FATCA rules alongside AEOI, which Delbaere said “leaves financial institutions in the awkward position of having to comply with two similar, yet divergent standards”.
Delbaere suggested that requirements for the two regulations are similar enough to warrant a united approach, and could be consolidated in to a single automated tax compliance solution. This, he said, would lead to cost savings, faster implementation, more consistent data, and improved ability to use best practices for both requirements.
The best-placed financial institutions will be those that upgrade their current technology infrastructure to collect and report the additional information required under the new regulation. This should also be able to simultaneously consolidate and centralise information with other data, Delbaere said.
According to the report, such a data repository could help firms to comply with various regulatory requirements and offer a clearer overview of business activity. It could also help firms to identify and anticipate trends in the market and address any potential problem areas, informing planning and strategy across the organisation.
Delbaere added that with a 2018 deadline, firms should start to make these changes now, suggesting that a common cause of failure in implementing regulatory solutions is a failure to start on time.
He said: “The window of opportunity to adequately prepare for a successful Global Account Tax Compliance Act implementation is swiftly closing, and institutions that have not yet decided on their strategic approach may find themselves in a tricky position.”
The survey featured 40 financial institutions across eight APAC markets, and was conducted throughout December 2015.
The majority of APAC jurisdictions have committed to sharing tax information under the Automated Exchange of Information (AEOI), sometimes referred to as the global version of the US Foreign Account Tax Compliance Act (FATCA), by 2018. India and South Korea have agreed to begin sharing information a year earlier.
However, a survey by Wolters Kluwer Financial Services and the GRC Institute found that over 90 percent of financial institutions have not yet started implementing solutions, and have no global teams in place to address the requirements. Almost 60 percent said they have not yet discussed their strategy for AEOI internally.
The report also found that the majority of institutions are using manual processes for their current FATCA requirements. Almost 90 percent are taking either a completely manual or semi-automated approach to FATCA reporting, and more than half are relying on a completely manual solution.
Delbaere said: “This approach is inherently risky. Not only is it error-prone and time-consuming, there are also shortcomings in user and version control.”
“Manual spreadsheets enable business users to easily visualise and organise data, however, this flexibility comes at a price. Freely making changes to the data, formulae and formatting opens the door to errors, inaccuracies and inconsistencies, without any corresponding audit trail.”
According to Delbaere, the new AEOI regulation will mean additional data requirements, increased cross-border coordination and more, and more complex, client information reporting.
This manual approach to FATCA limits scalability, and will become impractical for managing AEOI requirements. Although it may work for FATCA, because the regulation applies to a limited number of accounts – those with connection to the US – AEIO applies to more than 100 jurisdictions.
Delbaere said: “Taking a tactical approach for FATCA reporting – be it completely manual or semi-automated – significantly increases the risk of being caught out by tax, and with the financial institutions’ reputation at stake, any form of regulatory compliance should not be taken lightly.”
The report also noted that the US still intends to apply FATCA rules alongside AEOI, which Delbaere said “leaves financial institutions in the awkward position of having to comply with two similar, yet divergent standards”.
Delbaere suggested that requirements for the two regulations are similar enough to warrant a united approach, and could be consolidated in to a single automated tax compliance solution. This, he said, would lead to cost savings, faster implementation, more consistent data, and improved ability to use best practices for both requirements.
The best-placed financial institutions will be those that upgrade their current technology infrastructure to collect and report the additional information required under the new regulation. This should also be able to simultaneously consolidate and centralise information with other data, Delbaere said.
According to the report, such a data repository could help firms to comply with various regulatory requirements and offer a clearer overview of business activity. It could also help firms to identify and anticipate trends in the market and address any potential problem areas, informing planning and strategy across the organisation.
Delbaere added that with a 2018 deadline, firms should start to make these changes now, suggesting that a common cause of failure in implementing regulatory solutions is a failure to start on time.
He said: “The window of opportunity to adequately prepare for a successful Global Account Tax Compliance Act implementation is swiftly closing, and institutions that have not yet decided on their strategic approach may find themselves in a tricky position.”
The survey featured 40 financial institutions across eight APAC markets, and was conducted throughout December 2015.
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