Jan 8, 2016 – By Thierry Haensenberger, Senior Vice President, EMEA
Implementation of the reporting requirements of the Foreign Account Tax Compliance Act (FATCA) in 2015 was marked by postponed deadlines and the late publication of report submission formats in many countries. Further changes and uncertainty are likely, but this does not mean financial firms have to put off their plans to adopt a strategic reporting solution for FATCA and the related Common Reporting Standard (CRS)/Automatic Exchange of Information (AEI) in 2016.
The FATCA reporting burden will increase significantly this year, as the scope of reportable accounts is expanded to include those opened by US people and entities before July 2014. This will be followed by an even greater increase in the number of reportable accounts in 2017, when CRS reporting begins.
Firms realize they will struggle to manage these increases in reporting if they continue to use the fragile, semi-automated systems that got them through the first round of FATCA reporting in 2015. However, the situation is complicated by the likelihood that changes will be made to FATCA report formats in some countries and by the uncertainty surrounding the formats that will be mandated for CRS.
With this in mind, some firms may be tempted to postpone their plans to migrate to a strategic reporting solution until the requirements have reached a ‘steady state’. This would be a big mistake as it would reduce the amount of time they have to implement the requirements, leaving them exposed to the possibility of missing a reporting deadline. This approach also overlooks the fact that regulators will always tweak and change their reporting requirements, even after they have been implemented.
To ensure they are fully prepared for increased reporting in 2016 and 2017, firms should not delay their adoption of a strategic solution for FATCA and CRS. Instead, they should focus on ensuring that the solution they implement is highly flexible and can adapt quickly to the regulatory changes that are to come.
Many firms encounter serious difficulties because the reporting tools they use do not allow them to implement regulatory changes without undertaking a complete software update, including full regression testing. This is a long and complicated process. It unnecessarily impacts all users of the tool and runs the risk of breaking the valid logic that has already been built within the tool, especially that which is being used in countries where the FATCA and CRS requirements have not changed.
The best way to avoid these issues and to manage both FATCA and CRS is by using a strategic regulatory reporting platform that separates the regulatory functionality from the core platform functionality. This means that if there is a change to the FATCA or CRS reporting requirements in any country (such as the addition of a new field to a report template), the firm will be able to accommodate this quickly through a localized logic update without needing to spend time implementing a software update, which affects the entire platform across countries and regulations.
Due to the increase in reporting volumes and the likelihood of a period of intensive regulatory change and fine-tuning, firms cannot afford to put off their migration to a strategic solution for FATCA and CRS. By equipping themselves with a flexible regulatory reporting platform now, they can ensure they are prepared to address the continuing changes to the requirements, with the level of auditability mandated by regulators.