How in-house tech tinkering to deal with the Global Tax Evasion initiative is failing to deliver a strategic reporting solution.
Collectively, the Australian Financial Services Industry have spent in excess of $500 million across the last three years in an attempt to develop their own FATCA and CRS compliance technology solutions. It is believed none have yet come up with a strategic solution that will address the ongoing annual reporting requirements of CRS, which is an agreement between the world’s Tax Authorities designed to detect global tax evasion. In Australia, all businesses that manage the financial accounts of foreign tax residents must report these accounts to the ATO.
Without a strategic reporting solution, producing reports for the ATO on an annual basis will be extremely difficult for operational staff, requiring excessive manual handling of data and therefore be error-prone.
Further, the remediation consequences of failing to get this reporting approach correct from the outset are significant, with ongoing annual reporting creating a compounding effect of additional work to correct inaccuracies which may have occurred in previous year’s compliance reports while trying to deliver updated reports for the current year.
“CRS requires a strategic solution to avoid long term pain. By strategic, I mean a single technology that can be installed in one project and will satisfy all CRS reporting criteria for the long term,” says Dr Tony Jansen, one of Australia’s leading experts on Regtech as it applies to FATCA and CRS. “The Australian financial services industry is currently facing a large and open-ended drain on its resources if it does not come to terms with this challenge quickly.”
CRS reports are due in to the ATO for the first time on July 31.
“In the case of any large financial institution monitoring millions of financial accounts on an on-going basis, as is required of CRS, this cannot be done manually. It’s simply impossible,” says Dr Jansen. “Many in the industry don’t yet realise that, for large data volumes, a CRS solution without automation cannot by definition be compliant.”
The most typical technology approaches have been attempts to modify existing Anti-Money Laundering (AML) software, or pulling data together through ad hoc search queries to analyse individual CRS requirements one at a time. As large financial institutions are discovering at great cost, these alternatives are flawed and do not deliver a coherent approach to achieve a single standard solution to full compliance.
Says Dr Jansen, “The fragmented way in which the financial services industry and its major organisations have approached this problem has not only created significant inefficiency, but it is not clear within these businesses who specifically owns the responsibility of delivering the CRS compliance requirement.”
In working within the financial services industry on numerous technology projects, Dr Jansen foresaw this issue some years ago realising that the complexity of the FATCA & CRS compliance requirement would render the approaches of modifying AML software or using ad hoc queries both ineffective and costly.
Furthermore, with large financial institutions pursuing this current approach, Dr Jansen predicts poor customer experiences during the due diligence stage of the process due to lack of a single coherent platform that correctly identifies and prioritises the exact information required. In addition, without a single standard reporting approach, Dr Jansen says another issue will be the chronic problem of financial institutions either over- or under-reporting on CRS.
In response to this challenge, Dr Jansen began coding a program from the ground-up called FACS, and in partnership with GCS Agile has produced a world leading software program built specifically to manage FATCA and CRS end-to-end compliance.
For more information, contact:
Chief Digital Officer, GCS Agile
0451 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 an as-yet unannounced fine expected to be in the hundreds of millions.
- 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).