Not understanding the monitoring, 90-day change of circumstance, and audit trail requirements will create an ongoing resources drain for companies not set up to properly manage their CRS obligation.
As the implications of CRS reporting become better understood to the financial services community, one of the growing realisations is that this new compliance regime requires a paradigm shift in the way reports are prepared and delivered. CRS (Common Reporting Standard) is an agreement between the world’s Tax Authorities designed to detect tax evasion. All businesses that manage the financial accounts of foreign tax residents living in Australia must report to the ATO for the first time this year.
“Most financial institutions don’t understand what CRS compliance is actually costing them,” says Stuart Growse, Chief Digital Officer at GCS Agile. “The siloed nature of the current approach to developing in-house solutions has led to an opaque operating environment where the inefficiencies and duplication of effort across an organisation cannot be seen or understood.”
This organisational blind spot has in part been created by a misunderstanding of how to best tackle a new compliance regime that requires regular monitoring to capture the status of foreign tax resident’s financial accounts.
For example, by July 31, 2018 financial institutions will need to file CRS reports to the ATO on their accounts through the period of July 1-December 31, 2017. This is not a snapshot as of December 31 but a summary of all activity that occurred throughout the period. If a foreign tax resident closed an account on October 15, the CRS report will need to capture that fact.
Says Growse, “This requires a new holistic approach to compliance reporting. The key is to set up a single technology that feeds these reporting fields throughout the year. If not, there will be a business impact that management cannot see in trying to manage this compliance manually.”
Complexity abounds. The ongoing monitoring of millions of accounts simultaneously to keep an eye on relevant account status changes is one challenge. To act on those changes in 90 days is another. Yet another is to have an audit functionality in place with the key understanding being that the ATO will want to look at why an organisation hasn’t reported on certain accounts. The requirement is mind-boggling in its forensic need.
“A manual approach means the costs of compliance are unknown and potentially open-ended,” says Growse. “This leads to a pattern of compounding pain points. For example, unnecessary reporting results in poor customer experiences during due diligence, or an ATO audit requiring additional investigations and internal resources being consumed.”
GCS Agile is Australia’s leading specialist consulting group to advise companies on how to best meet their FATCA and CRS compliance obligations, and includes issues of digital strategy, taxation, and technology. As a first step, the team will produce within two weeks a Risk Assessment Report that provides full details on what specific actions a business needs to take to be compliant by July 31.
GCS Agile is also the provider of FACS, the world’s leading software platform built specifically to address FATCA and CRS end-to-end compliance, and also works in different jurisdictions worldwide to understand the nuances of Tax Authorities’ requirements for their CRS reports locally.
For more information, contact:
Chief Digital Officer, GCS Agile
+61 451 121 774
Compliance is complex and costly for the Financial Services Industry
- Compliance costs the global financial services industry over $270B annually.
- Fines alone have cost global lenders at least US$321B since the 2007-08 financial crisis.
- CBA’s AML compliance breach announced on August 3, 2017, has resulted in C-Level role changes, a greater than 10% share price drop in the month following the announcement, and a $700 million fine.
- Based on ATO published penalty rates, a breach of 10,000 non-reported CRS accounts (error rate less than 1%) by a financial institution earning more than $1 billion in revenue will be liable for fines of up to $5.25 billion.
FACS (FATCA and CRS Service)
- Complete end to end service that covers Data Preparation, Identify & Classify, Due Diligence, Reporting, and Audit.
- Highly flexible and configurable.
- Real time dashboard reporting with full work flow views.
- Complete, continuous audit trail and ongoing monitoring.
- Rapid implementation.
- ATO supported functionality and have completed ATO partner program.
- Only FATCA and CRS solution to be registered in ATO ABSIA (Australian Business Software Industry Association).