16 Oct CRS – The Next Compliance Challenge
Written by: Abraham Teo, Global Head of Tax Products & Head of Product Management (APAC), AxiomSL
As a consequence of the Global Financial Crisis 10 years ago, financial institutions (FIs) have been inundated with regulatory compliance requirements across all areas of their business. They have had to stay on top of and comply with multitude of regulations such as Liquidity (LCR & NSFR), IFRS 9, FATCA, Shareholding Disclosures just to name a few. The Chief Compliance Officer position has therefore grown in importance and the number of staff in compliance roles has increased significantly in recent years. Large global banks are estimated to be spending well over US$1billon a year on compliance with a European bank recently estimating that on average, 10-15% of financial institutions’ employees are now involved in some function related to regulatory compliance and control.
The next cab off the rank for FIs in most countries in the Asia Pacific region is the Common Reporting Standard (CRS). CRS is the Organization for Economic Co-operation and Development’s (OECD) equivalent of the US’s Foreign Account Tax Compliance Act (FATCA) or the UK’s Crown Dependencies and Overseas Territories Reporting (CDOT). It is a cross-jurisdictional regulation that aims to standardize the exchange of client tax information globally.
CRS was first endorsed by the OECD in 2014. Currently more than 100 jurisdictions have already committed to it and have activated over 1800 bilateral exchange relationships. Although, the scale of CRS is unprecedented, the fundamentals for compliance remains the same. It is imperative that FIs implement a strong and solid regulatory reporting model, with a base system that can handle the scope and complexities of different regulations across multiple jurisdictions. Not only will this keep the cost of compliance low whilst achieving faster time to market, it will ultimately ensure accuracy of compliance.
With that said, there are some common threads that run through the implementation of every successful compliance program.
Data – It is one thing to be able to identify the relevant reporting data and where it resides within the FI’s technology infrastructure but quite another to be able to extract, merge and transform these data points into a readily reportable format. Due to the complexity of the regulation, this often needs to be carried out across multiple entities, business units and jurisdictions. Having a strategic data management framework in place is crucial in ensuring the flexibility and adaptability of existing systems and processes when it comes to complying with future changes to the regulatory requirements.
Governance – Checks and controls need to be in place to ensure that the correct data is being compiled and calculated throughout the reporting lifecycle. Adopting a centralized, single platform approach ensures consistency in the data collection and transformation process in addition to reducing the cost and complexity of compliance.
Change – The only thing that is certain about regulatory requirements is the element of change. Deploying a single, integrated platform that allows FIs the flexibility to add on additional regulatory reporting solutions or to easily make changes to reports in light of new regulatory requirements is vital. It is important that users have the option of segmenting their data based on different attributes, as well as the ability to segregate changes that are regulatory-specific in nature from changes that are related to core platform functionalities. Choosing the right partner to work with in an advisory or technology implementation capacity is another key factor in ensuring that the FI is keeping on top of compliance guidelines.