By Abraham Teo, Head of Product Management APAC, AxiomSL APAC
Inundated by a barrage of schemas; technologists, analysts and compliance specialists around the globe tasked with tackling CRS must have thought to themselves at least once: “There must be a better way!”
Since the introduction of the Common Reporting Standard’s, it has become increasingly clear that there is nothing “common” or “standard” about it. For the people at the sharp end of implementing CRS, challenges appear at every corner. The inherent flexibility of CRS is a blessing to its worldwide adoption. But, it also can be a curse for those charged with understanding and implementing it.
As many regulatory interpretations as there are jurisdictions
Jurisdictions – there are at least 102 – each interpret CRS in accordance with their individual regulatory needs. These many interpretations are cousins – some close relatives and others more distant. Where one jurisdiction decides to vary drastically from the Standard, making it obvious where the points of departure occur, another may deviate so faintly that one must comb through deep details in order to identify the variance.
It is therefore crucial to be able to understand and cater to all variants across all jurisdictions where their Financial Institution (FIs) does business or plans to do business.
Myriad of languages within reportable jurisdictions
Then there is the problem of translation. Many CRS versions are written in that jurisdiction’s local language instead of English with examples in Asia such as Korea, China and Japan. Those charged with implementing CRS for jurisdictions written in a foreign language are faced with an even tougher challenge. To ensure accuracy, FIs expend not just time and effort but also countless resources translating, interpreting, understanding and relating the jurisdiction’s version back to the Standard.
Often, CRS documents created by inexperienced translators may be marred by the translator’s biases or lack of subject matter knowledge, thus steering the unknowing FI down a false path of implementation. This results in the inability of the FI to meet full compliance and ultimately requires additional time and resources to rectify thereby increasing the cost of compliance unnecessarily.
As many schemas as there are jurisdictions
True to its flexible nature, CRS also allows local tax authorities to decide how information should be reported, creating the potential for 105 schema variants, one for each participating country – a veritable quagmire of possible cases and combinations which FIs grapple with.
So what does all of the above mean? How do all these possible variations fundamentally affect your CRS reporting?
Let’s take a look at this from a XML file generation perspective.
Getting Granular – Approaches to Generating XML Files for Reportable Accounts
To illustrate the challenges highlighted, let’s take a peek at the schema problem through the lens of reportable accounts.
In assessing the CRS schema’s rules on how XML files should be generated based on reportable accounts, four general approaches emerge from a myriad of approaches. The four general approaches are:
- Submit a separate XML file for each reportable jurisdiction. (An FI responsible for reporting in 30 jurisdictions must consequently generate 30 individual files)
- Submit one XML file, repeat “CRSBody” if necessary
- Submit one XML file, repeat “AccountReport” if necessary
- Submit one XML file, repeat “TIN, if necessary
A point to note is that these are general rules of thumb, each approach has its multitude of variations.
Approach #3 under the Microscope – A Singapore example
To illustrate the complexity faced by technicians and analysts working on CRS, it is worth looking closer at approach #3, within which there are various subcategories. According to Section IVb of the CRS Schema User Guide, the FI must provide only one “ReportingGroup” for each “CRSBody.” However, the FI may choose to repeat “AccountReport” if necessary. What does this mean?
As a reporting jurisdiction, Singapore falls under approach #3.
How should an FI operating in Singapore report an instance where there is an Entity Account (Passive NFE) with two Controlling Persons (CPs) reportable to different jurisdictions?
As illustrated by the decision tree exhibit below, a total of three AccountReports must be generated:
- CP 1 requires two AccountReports because it has two Reportable Jurisdictions (X and Y).
- CP 2 requires one AccountReport because it has only one Reportable Jurisdiction (Y).
As Jurisdiction X is also a reportable jurisdiction of CP 1, there is no need to create another AccountReport CRS103 for the Passive NFE as its information is reported under AccountReport 1.
And, that example represents only the tip of the iceberg. The FI must grapple with many more challenges including:
- Differing Information Periods. In jurisdictions where there are various information periods, the AccountReport may be created based on other considerations. For example, in Hong Kong each AccountReport may consist of multiple reportable jurisdictions as long as the information period is the same. Hong Kong also allows submission of two different XML files based on each information period.
- Additional Elements. The complexity increases when a jurisdiction decides to include additional elements specific only to itself. In China, additional categories and elements include CRS100 (a non-resident individual), gender, phone number and due-diligence indicator. China also requires the FI to split certain reporting details based on pre-existing and new accounts.
- Continual Updates; Hard deadlines. FIs must constantly update themselves on the regulations and requirements and report on time to the local tax authority.
As is very well understood by those implementing the Standard, the journey to being CRS-compliant is arduous indeed.
With AxiomSL, There Is a Better Way.
AxiomSL, a global leader in regulatory compliance and risk management solutions for over 20 years, provides a data driven compliance platform, which empowers financial institutions to meet their CRS regulatory requirements with confidence. The centralization of data on a single strategic platform and the automation of the compliance process delivers a simple, cost effective and scalable solution, which collects, analyzes, monitors, audits and validates data and then reports from thousands of client records. 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 a full audit trail ensuring traceability of every process.