Rules that oblige certain businesses to report the financial transactions of their customers, investors and policy holders (henceforth termed “customers”) are numerous and becoming increasingly stringent. A growing number of authorities across the globe are seeking and gaining ever-greater transparency by leveraging laws and regulations such as the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS), which require companies that hold, manage, administer or invest money or financial assets on behalf of third parties to share their customers’ information with tax authorities.
While this landscape is becoming more complex, it is clear this reporting requirement will continue to intensify. A solution that will work for today might not be fit for tomorrow.
Failure to adapt in this environment risks financial penalty, reputational damage and adverse customer experience. Businesses that adopt an agile, transformative mindset, anticipate change and improve their processes, people and technology accordingly will achieve compliance in the most effective and cost-efficient way possible.
Scalable and futureproofed processes, which can flex with every change in reporting requirements, are the key to success, according to Anish Benara, EY Asia-Pacific Financial Services Partner at Ernst & Young Tax Services Limited.
“After more than half a decade of FATCA and CRS, you would assume the regulations are stable by now, organizations would have perfected their implementation, and customer tax reporting would be regarded as business as usual,” he says. “But in reality, this is not the case.”
Initially, impacted organizations scrambled for compliance, largely developing manual processes that met the immediate obligation. Over time, they began to look for ways to improve the efficiency of those systems, often by adapting legacy technology to provide a degree of automation. Then as they entered the “business as usual” phase, many looked to generate cost savings, moving some of the more labor-intensive manual processes to offshore centers. However, when the COVID-19 pandemic hit, the latter strategy fell apart.
To make things even more difficult, new guidance is being issued regularly, the volume of transactions is increasing, and requirements are also becoming more challenging to meet. Take the Cayman Islands, for example, where authorities have recently introduced new CRS compliance forms which are required to be submitted annually in addition to an annual return. Meanwhile, other jurisdictions, such as Singapore, now expect financial institutions to have a self-review toolkit in place to ensure their internal controls are fit for purpose.
As a result, organizations increasingly recognize that, although there is an important manual aspect that can’t be erased, adaptable technology and processes have to be front and center. And the optimal solution is to have all three.