Are the GCC banks ready for CRS reporting?

20/10/2017 – By Sufyan Khan, Product Manager, AxiomSL EMEA

The objective of developing a Common Reporting Standard (CRS) is to combat tax evasion. CRS is the tax reporting framework developed by Organisation for Economic Cooperation and Development (OECD) that requires Automatic Exchange of Information (AEOI) between tax authorities in participating countries for inter-jurisdiction reporting. Under CRS, financial institutions (FIs) are obliged to identify reportable persons that are tax residents in another country and exchange this information with the taxpayer’s residence jurisdiction.

Given that CRS is a global initiative as oppose to FATCA which focuses only on US citizens; all banks, asset management companies and insurers in participating countries around the globe are required to maintain compliance with the CRS standard. More than 100 jurisdictions have already committed to the implementation of this new legislation including the Gulf Cooperation Council (GCC) countries with the aim to prevent taxpayers to circumvent reporting, increase transparency and protect the integrity of tax systems.

What is the CRS Reporting Timeline in the GCC?

With the majority of jurisdictions already started their CRS implementation, some have committed to adopt the regime only recently such as the case with the GCC countries. To comply with the CRS, participating jurisdictions within the GCC countries are required to go live with the standard in 2018 and submit reporting by 2019. While the global effort to increase transparency represents firms with the perfect opportunity to enhance their business and service operations, the challenges on managing the compliance needs are extremely complex. Since CRS is more wide-reaching than FATCA, the need for a unified approach to ensure readiness and compliance becomes ever so clear, especially within the countries that appear less prepared.

Key Challenges of CRS

The real challenge of the CRS complexity is the volume of clients and their accounts. FIs must deal with processing significantly large volumes of data and evaluate millions of customer records in order to identify which accounts and sub-accounts are reportable under the standard. The banks have to segregate the information between residents and non-residents and break it down according to different jurisdictions. The implementation process, therefore, needs to be automated on a very smart fashion. Or else, how will financial institutions in the GCC and all over the world manage this complexity, with the specific reporting requirements of more than 100 countries? Given the extensive range of countries signed up for the CRS, data to be reported will certainly be a lot higher than its predecessor FATCA.

One of the biggest challenges is the scope of the CRS reporting. For instance, if a GCC bank has 15 entities in different jurisdictions, every entity will need to comply with the reporting requirement of that country, whether the reporting is based on the common reporting framework or on a specific reporting requirement. FIs must ensure compliance across multiple jurisdictions and ensure the data is submitted in the right format and reporting framework whilst remaining adaptable to the regulatory changes. Are the FIs in the GCC ready to ensure their data is in line with the CSR reporting framework? Can they cater for implementation requirement automatically with limited resources deployed for the process? Ultimately, can this be done in a highly intelligent manner that is cost-effective, efficient and streamlined?

The complexity of the process is undoubtedly another challenge for firms to tackle, with the identification, capturing and analysing customer data happening at entity level. As a result, all these factors contribute the compliance cost to peak with a shorter AEOI implementation timeframe. It is not possible to overcome those challenges with a manual excel spreadsheet approach.

Today, FIs all around the globe collectively realise the need for systematic technology solutions to tackle not only CRS requirement but also the never-ending regulatory reporting challenges in order to ensure compliance and avoid penalties. This is why it is crucial to have automation, governance and audit trail to ease the process of implementation now and in the long term.

Staying Ahead

Tax reporting requirements has increased exponentially over the recent years and is set to become even more intricate in the future. With the implementation deadlines firmly in sight for GCC countries, the new world of tax transparency will no longer tolerate tax evaders. The CRS is already empowering governments to gather and investigate any proof of tax evasion and will continue to do so within GCC countries when the implementation starts a year from now. To get a head start on preparing for the CRS implementation deadlines, FIs within the GCC countries need to take action now to assess their reporting options strategies that will ensure compliance on time and benefit the organisation in the longer term.

Today, many technology vendors in the market expect their clients to go through an extremely time-consuming and costly ‘Extract, Transform, Load’ (ETL) process that may also represent a high project risk. FIs should be able to remain compliant not just with FATCA, CRS but other global or regional regulations too, in a cost-effective and timely manner with a reduced Total Cost of Ownership (TCO).

AxiomSL’s single strategic platform addresses the CRS requirements by covering all areas of the regime, including client classification and reporting, ensuring automation of the compliance process with a simple, cost-effective and scalable solution. The platform collects, analyses, monitors, audits and validates data before going through a common Data Dictionary (DD) without the need of going through an ETL process. Once the reports are generated within the platform from millions of client records in the right format, AxiomSL then submits the report to any required jurisdiction within a very short timeframe. AxiomSL’s CRS solution is easy to install at the core of your system infrastructure without any data conversion, allowing you to be CRS compliant with multi-jurisdiction reporting coverage and a full audit trail ensuring traceability at every step of the process.

Click to find out more about AxiomSL’s CRS Solution.