Financial institutions should assess their compliance status and decide if they need any prioritized and actionable remediation strategies.
The evolution of customer tax transparency continues rapidly for the financial services industry. The US Qualified Intermediary (QI) regime, the US Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) are just the beginning of the overall customer tax transparency landscape expected in the coming years.
This complex area, which involves several related regimes supported by strong political will at global and local levels, creates volatility and requires a keen focus by the financial services industry. Rather than simple tax returns, these regimes demand transformational change across the organization for financial institutions (FIs) and impose a series of ongoing compliance measures and new governance and internal control strategies.
Recently, several tax authorities have informally announced upcoming FATCA and CRS compliance audits. Impacted organizations around the globe are now struggling to put a consistent, efficient and sustainable compliance plan in place. The reality is that the lack of awareness regarding the real compliance status with FATCA and CRS regulations has put stakeholders of certain financial organizations in a misguided position of comfort. This makes it difficult for those involved in the often temporary FATCA and CRS project teams to obtain the required support, traction and ownership from stakeholders.
Figures gathered during our FATCA and CRS effective reporting control and compliance webcast series held in February and March 2018 show that data quality is still one of the major challenges found by FIs in relation to FATCA and CRS reporting, even though 2018 is the fourth year of FATCA reporting in most jurisdictions. This demonstrates a lack of proper operational effectiveness and internal controls.
To further illustrate this, Katrina Petrosovitch, Partner in the EY Business Tax Advisory Services in Belgium, recently commented that the focus of FIs must shift to be in compliance.
“The simultaneous application of rules for FATCA, CRS and other local regimes has not made it easy on financial institutions to comply with the regimes, causing FIs to focus primarily on meeting reporting deadlines,” says Petrosovitch. “Now, however, these tax transparency regimes are reaching a stage where they should already be running on a business-as-usual mode, and tax authorities will not look only at the submission of returns upon the deadline, but also data quality and whether controls were properly implemented within organizations.”