31 August 2014

Regulatory Client Onboarding

Marc Murphy - Fenergo

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Data Management 101

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FATCA - a continuous data management process

17 January 2013  |  4097 views  |  0

The FATCA regulations have been widely tipped to be arriving very soon. However, multiple date changes so far for final FATCA regulations have created a huge amount of uncertainty in the market, which has contributed to making it increasingly difficult for financial institutions to map out product/project timeframes.

Nevertheless, even in the absence of concrete regulations, financial institutions are pushing ahead to kick-start their FATCA programmes – starting, logically enough, with the data management segment. I say “logically enough” because client data management forms the very foundation upon which FATCA is built.

Financial institutions are beginning to take note of the data that they currently have on existing clients, where it’s stored and how it can be improved to help with the;

  • search for and identification of clients with US indicia,
  • requesting, collecting, processing and evidencing of supporting documentation,
  • classification of clients according to the IRS-specified guidelines, and
  • reporting on those with a FATCA-liability and/or withholding (the latter, of course, depending on whether the FFI operates within a country that has signed an Intergovernmental Agreement (IGA)).

For new clients, financial institutions are examining their onboarding processes and systems to incorporate FATCA-specific data capture fields, ensuring that they have the ability to initiate the FATCA classification and request supporting documentation from clients identified with a potential FATCA-liability.

Relatively straightforward so far! However, it starts getting a little bit more complicated for ongoing client reviews.

As an ongoing process, a financial institution’s ability to remain compliant with FATCA means that they must be capable of detecting and flagging change of circumstance data in their client profiles, which could potentially have a material impact on a client’s previous FATCA status and classification. An example of this is where a person’s or entity’s tax documentation has expired and, upon renewal and review, has indicated that a person’s previous status has indeed changed. If a change has occurred in a person’s or entity’s FATCA classification status, additional documentation may be required and requested to support the documentary evidencing, and reporting and withholding of tax.

At a time when financial institutions are analysing their data needs and examining the ability of their IT systems to cope with the specific demands that FATCA makes on them, they should also make sure that they have the capabilities to monitor and track expiry dates on documents and ensure that their document management systems can sustain the influx of additional documentation that FATCA will generate. 

And, in fact, financial institutions won’t simply stop here. Instead of depending solely on change of circumstance data, they will proactively undertake periodic reviews of client data (e.g. every three-years (in the case of a Deemed-Compliance FFI as per the IRS guidelines) in an effort to identify any changes in the client profile that would result in a FATCA status change and re-initiate the FATCA classification, self-certification, document-collection and reporting processes. Once again, it will come down to IT to make this process more streamlined and easier to manage.

Hands down, FATCA is a momentous data exercise. Given its data-intensive and document collection-heavy nature, it makes sense to try and automate as much of the compliance and onboarding process as possible - not just for the upfront compliance programme, but to ensure constant monitoring, review and identification of client records on an ongoing basis.

TagsRisk & regulationWholesale banking

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