Now that the final FATCA regulations and timeline are published, financial institutions are facing a monumental task. It’s unlikely that the deadlines will change, and these institutions must act now or face the significant consequences of non-compliance.
With the first deadline on January 1, 2014, banks are scrambling to quickly move forward to comply with US Treasury, IGA and local law requirements, and meet timelines, without jeopardizing their overall business operations. It doesn’t make it any easier that customization is needed per country due to FATCA’s span to various lines of business and locations.
Working within such a short timeframe, financial institutions should be prepared to aggressively attack compliance deadlines and have their strategy in place before deadlines arrive. The approach should be coordinated in the least disruptive way possible, with a “business as usual” mindset and an eye to minimize costs. Additionally, the approach should be streamlined to mitigate pain points unique to each organization.
Here are five areas that should be considered to help make the first FATCA deadline while not jeopardizing business operations.
• Build a centralized FATCA process that looks across the global enterprise: Many organizations are approaching FATCA thinking that by allowing each line of business to develop its own solution, it can reach compliance more quickly. However, FATCA has global application and, in most situations, is most efficiently implemented as a global solution with country-specific processes. Trying to access different data silos in different lines of business is far less efficient than having a global approach and centralized repository. The goal should be to have a unified, cost-efficient, global FATCA compliance process that has the scalability and sustainability to manage evolving guidance under US law, local law, IGAs and changes in business requirements.
• Take advantage of technology to automate and accelerate the process, reduce costs and ensure compliance: Changing front-end processes, core banking and onboarding systems to accommodate varied transactions is a significant effort that can be high risk and slow to complete. Therefore, a “plug in” solution that leverages existing systems and is capable of communicating with existing technology may be faster and more flexible in the long run. This approach is faster to implement and provides the flexibility to maintain compliance as the law and the business changes.
• Utilize legal knowledge to develop rules based engines: Being able to sort through country-specific transactions and capture the ones that need to be reported, as well as those that need withholding, will be a difficult task. By tapping into the necessary legal knowledge up front, banks can implement a rules-based technology solution that will automate the vast majority of processing around client data, performing due diligence, reporting, withholding record-keeping, validation and audit. For banks operating in multiple countries, the solution will need country-specific legal advice.
• Understand legal entity exceptions to minimize the scope of compliance: Many banks are starting their FATCA due diligence process by identifying the number of U.S. persons in their account base. However some parts of the business may be exempt from FATCA making large parts of the overall account base eliminated from consideration. Instead of starting with accounts, banks should look at their legal entities (including affiliates and subsidiaries), reconcile those with exemptions under the law, and limit their account review to just those accounts in legal entities affected by FATCA. This focused approach is more efficient, reduces cost, and offers a better chance of making the deadline.
• Involve the right parties at the outset: Practically speaking, it will take finely choreographed coordination of U.S. and local legal, tax, risk and compliance professionals—supported by technology, operations and software experts to design, implement and sustain a workable FATCA compliance program. A closely coordinated effort from the outset will significantly increase efficiency and speed time to completion.
FATCA compliance is a highly complex, tremendous undertaking for multi-national companies to address. As January 2014 approaches, regulators will need to see from all financial institutions a good faith effort toward compliance. Whatever path your company is on, by taking the above options into consideration you are more likely to meet the deadlines as well as build a solution that has both the robustness and the flexibility to stand the test of time.
By Erik Christensen, vice president and head of compliance practice, and Aaron Kahler, director of anti-money laundering compliance, of Capgemini.