Final FATCA clarifications leave financial services sector with tight deadlines

Foreign financial institutions that have waited for clarity on the implications of the FATCA before acting, have left themselves with a tight deadline.

March 18, 2013

Foreign financial institutions that have waited for clarity on the implications of the Foreign Account Tax Compliance Act (FATCA) before acting, have left themselves with a tight deadline if they are to meet the requirements of the Act as finally published on 28 January 2013.

The responsible United States (US) departments – the United States Treasury and Internal Revenue Service – have given affected businesses until the beginning of 2015 to put the systems in place that can, for example, allow them to correctly identify US persons, accurately assess total earning and report these correctly to the US tax authorities – with initial enhancements for on-boarding required in less than a year.

Feedback from affected banks and insurance companies in Europe reveal that poor quality master client data is regarded as the single biggest hurdle to achieving these deadlines. The problem is particularly acute for organisations that have adopted a siloed approach to business, where customer data, and transactions, may be captured by multiple business units without a shared view.

According to Trillium Software VP, Jon Asprey, who heads the Trillium FACTA Compliance Data Assessment team, very few firms have certified that their data capture processes and existing client information will support reliable account identification and classification.

“South African companies must balance the need to comply with FATCA with the requirement to protect customer privacy under the impending Protection of Personal Information (PoPI) legislation, which in essence states that you may not unnecessarily divulge a client’s personal information to a third party,” says Kerry Allemann, Managing Consultant at Trillium Software’s South African representative, Master Data Management. “To this end, companies must create an aggregated total of US citizens’ earnings across the business to ensure that required thresholds for reporting are met.”

Asprey’s experiences with multinational banks in the UK, US and Europe are relevant to South Africa. Although South African institutions may have a smaller exposure to US clients than UK businesses do, the onus is still on the organisation to prove that it has adequate processes in place to accurately identify and report on US citizens. Current levels of data capture and data quality mean that large numbers of records may require manual validation simply to rule them out of contention.

For example, at one bank the Trillium compliance team highlighted as many as 100,000 accounts that have data issues requiring manual investigation before they can be confidently verified as either subject to, or not subject to FATCA. By identifying the risk at an early stage, the bank can plan to manage this investigation in order to meet the 2014 deadlines for compliance.

Asprey recommends that firms gain a comprehensive assessment of the completeness and accuracy of their client data, rather than continuing to rely on gut feel and assumptions.

“Trillium proposes that institutions start the process of certifying their existing account data and new client data capture processes, allowing time to plan, resource and deliver what could result in complex remediation projects across multiple source systems.”

South African companies with FATCA compliance requirements can join Asprey; Prudential FATCA project lead, Andy Roberts; and Niresh Raja, Global FACTA Programme Director for Lloyds Banking Group for a FATCA Update Webinar to be hosted from the London Stock Exchange at 14:00 on 27 March 2013, by registering at http://marketforce-fatca-update-webinar.streamuk.com/

These experts will share their experiences and strategies to get FATCA-ready by 2014, while keeping costs down.