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While it hasn’t yet come into force, the Foreign Account Tax Compliance Act ('FATCA') has already stirred some very heated debate. Regulatory bodies, industry experts and financial services providers have all argued about how this new US regulation is going to have a much wider impact than perhaps expected.
The US Joint Committee on Taxation has estimated that FATCA will bring close to a billion more to the US Federal Government. However, this month financial institutions from around the world called for delay in enforcing the new regulation amid fears that FATCA's rules will cause confusion and reporting errors that could destabilise markets.
And indeed, these fears are not completely groundless. The new rules will force financial services providers to identify US customers and shareholders, and report them to the US revenue authorities for taxation purposes. While the concept behind this seems quite straightforward, this process will require financial organisations to determine family relationships between US and non-US customers, track pass through payments of US entities and identify existing customers that need to be FATCA compliant.
All these changes will affect current account opening processes, transaction processing systems and know your customer (KYC) procedures while adding additional IT costs for internal restructuring of KYC systems. With many banks relying on manual processing of customer on-boarding checks to cope with FATCA, the new requirements threaten to increase operating costs sharply. So what’s the way out of this regulatory conundrum?
To become compliant, financial organisations can revamp their existing IT systems to integrate FATCA compliance rules into a unified KYC solution. This will help them manage all aspects of the new regulation in a cost effective way and without slowing down customer on-boarding. Furthermore it will provide financial organisations with a 360 degree view of the customer and will enable them to reuse due diligence and look-back practices across different geographies and lines of business. This essentially ensures faster on-boarding with full compliance. As rules and regulations continue to evolve and change business users are able to make these changes into the system directly.
So, the customer centric systems that will help make a financial organisation FATCA compliant could also give them a competitive differentiator for the rest of their business. Indeed, for some organisations, FATCA may become a real blessing in disguise if it contributes to a transformation of KYC systems and processes that are better built for change.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
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