19 December 2014

Regulatory Client Onboarding

Marc Murphy - Fenergo

17Posts 65,597Views 1Comments

Data Management 101

A community blog about data and how to manage it

The FATCA Automation Challenge

22 August 2012  |  5512 views  |  4

As we near summer’s end, many of us will be experiencing that old familiar “back to school” feeling, as we refocus our thoughts and plans towards the forthcoming term. In financial services, the focus will be very much on the imminent finalisation and arrival of new regulations – particularly FATCA.

It’s true to say that most foreign financial institutions (FFIs) will have already begun the process of examining how their organisations’ processes, IT and people are geared up to handle this new, additional regulatory demand. With client onboarding expected to bear the brunt of the new FATCA regulatory compliance and implementation, it is widely believed that the biggest FATCA challenge lies in client identification, data collection and documentation processes. As a result, many institutions are looking at ways to streamline and automate as much as possible to cope with this additional regulatory pressure.

First up in the FATCA compliance challenge is to identify and collect client information for all US clients opening new accounts. From an IT perspective, this will mean implementing additional fields in client onboarding solutions that collect data pertaining to US indicia (e.g. address, residency, zip code, nationality, phone number etc.) and Tax Identification Numbers. Customer Due Diligence / Know Your Customer (CDD / KYC) data collection forms and procedures designed to capture this new information will also need to be rolled out across the financial institution. The aim for most FFIs will be to ensure that the additional data collection and processing does not hamper or slow down the new client onboarding process.

The second milestone is the biggie. Every FFI must screen all pre-existing client accounts to determine if US indicia exists. Fortunately, the latest Intergovernmental Model Agreements have relaxed the due diligence requirements slightly by allowing FFIs to complete electronic screening of accounts exceeding $1 million where their databases contain sufficient information to enable identification to take place. Imagine having to sift through and review every single client record manually to declare if the client is a US person or not? Nightmare!

Next up is self-certification whereby clients will be required to self-certify if they are a US-person or not and complete the appropriate W-8 and W-9 tax forms to ensure the correct withholding rate (if any) is applied. Many banks are seriously considering how to automate this self-certification process to save valuable time, money and scarce resources on collecting client data, not to mention trying to ensure that it doesn’t impact client service and overall satisfaction.

The quicker data is collected, clients classified (i.e. the appropriate withholding tax is applied) and reporting capabilities implemented, the quicker the bank becomes fully FATCA compliant and the sooner these new processes and operations become business as usual. By automating this process, the information collected can be automatically appended to the client’s record in the bank’s client database, onboarding software solution and fed downstream to corresponding systems e.g. compliance, legal, risk, tax etc., enabling the sharing of data and contributing towards the creation of a single, consolidated client view across the institution.

So as a new term fast approaches, many FFIs will be busy keeping their heads down, making plans and checklists in preparation for the regulatory challenges that lie ahead. In a few months’ time, we’ll see the first results of this preparation as FFIs embed new controls, policies, procedures and technologies into their operations to make them FATCA compliant. Getting the right balance between operation and automation will be the key to achieving FATCA success – or the equivalent of getting all As on that end-of-term report card. 

TagsRisk & regulation

Comments: (5)

David Millar - DXL Partners - Isle of Wight | 23 August, 2012, 07:42

Good check list - but for a large majority of US citizens, and in particular those with dual citizenships, the only indicator (indicium?) is going to be place of birth. Have all financial institutions requested POB in the past when opening accounts? I am trying to recollect on the many accounts (bank, savings, investments, etc) I have opened in the past. The only way round this would be to ask all account holders this information, which would be a massive task and one that could upset many clients, in particular with suspicions that other governments may implement US-style global taxation based on citizenship rather than ressidence.

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
Marc Murphy - Fenergo - London | 24 August, 2012, 08:39

David, this a very good point and it only highlights the complexity of the issue. According to the recent FATCA IGA model, it lists seven indicia of U.S. status, one of which is "Unambiguous indication of a U.S. place of birth".

Although according to the model, this is optional for the Financial Institution, an IRS Form W-8 can be used for attestation and self-certification that the account holder is neither a U.S. citizen nor a U.S. resident for tax purposes. In our experience, some foreign banks have already informed their U.S. account holders that they must provide certain documentation to avoid having the account closed and possibly disclosed to the IRS. This is a costly process (think postal costs, processing, storing, etc). This is why we believe that automation can reduce the cost of this process, by efficiently and effectively managing the request and processing of documents (IRS W8/W9 forms). The focus is to be compliant with the regulation, but not at the expense of operational inefficiencies and/or detrimental customer impact.

There's no doubt that the onboarding process and document requirements for account opening and product onboarding will be affected. It remains to see how the different jurisdictions will have to be adapted to allow local FI to comply with these new requirements.

 

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
A Finextra member | 24 August, 2012, 15:59

The Swiss have come up with a solution for FATCA - refuse to have American clients (unless they are incrediblly wealthy and so worth it).  There are people who have had accounts with their Swiss banks for decades, and are now being told that they are "no longer welcome" due to the onus of FATCA.

Even those who have never put a foot in the US, but are are dual nationals (US/Seiss) due to a parent, are getting grief.

Just check the expat forums or do a google!

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 24 August, 2012, 20:27

Unlike most other countries I know of, USA is flush with publicly-available information about its citizens. A quick Google Search of "USA Background Check" will bring up several web services offering a wide range of indexes onscreen or via email / API. Banks can use such services to draw up a shortlist of candidates for further examination quite easily and cost-effectively. While I won't say the same thing for other nations, the task for US citizens is not so complex.

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
David Millar - DXL Partners - Isle of Wight | 24 August, 2012, 22:59

It is a mixture of global imperialism on behalf of the US and fear factor by the banks. The banks will spend, at the last estimate I saw, around US$150 billion to collect $10 billion in taxes. If a group of global banks just got together and said "we will ignore FATCA, we will close our US offices, and cease to handle US based investments and trade transactions" then I would be suprised if FATCA survived.

Frankly I beleive that if FATCA rolls to its conclusion, and other countries' tax authorities see it as a way to raise extra money, we will set back globalisation and international trade by 50 years and we will soon revert to the Medieval city states with their protectionism, isolation and religious/political bigotry. It was the merchants who got these states out of this and weakened the power of state and church. In 50 years we will be back where we were in 1350! Bring on the Inquisition.

 

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Latest posts from Marc

7 Ways to Improve Regulatory Document Management

11 March 2014  |  1341 views  |  1  |  Recommends 0

Marc's profile

job title CEO
location London
member since 2011
Summary profile See full profile »
Marc, CEO Fenergo, is a financial technology specialist with fifteen years experience developing, selling, and delivering enterprise software to banks and financial institutions. His responsibility is...

Marc's expertise

What Marc reads
Marc writes about
Marc's blog archive
March 2014 (1)2013 (8)2012 (8)

Who is commenting on Marc's posts

Stuart Evans