How Compliance Software Solutions Can Protect Your Financial Institution from FATCA and CRS Sanctions

The UAE central bank has recently imposed penalties on many banks and an exchange house for failing to comply with a reporting requirement related to tax evasion. The banks were obliged to implement the Common Reporting Standard (CRS), a reporting requirement to help fight US tax evasion. However, the failure to achieve the appropriate level of compliance regarding due diligence and reporting procedures and standards resulted in millions in losses. Adopting leading CRS and FATCA (Foreign Account Tax Compliance Act) Reporting Automation Software can help prevent such losses while supporting financial institutions by implementing the proper system.

The Key Challenges for Banks and Financial Institutions

Financial institutions must adhere to CRS and FATCA compliance software solutions and provide their tax authorities with relevant account data. They also need to ensure compliance with the respective due diligence procedures and high-quality data reported to the tax authorities. Thus, financial institutions need to understand the objectives and the requirements of the CRS and FATCA. The reported information also needs to be followed with the format and data requested by the local tax authorities. The completeness and correctness of data rely highly on self-certifications of any new or pre-existing client and any other client static data on file. Additionally, local existing or not existing know your customer (KYC), or anti-money laundering (AML) requirements can facilitate or complicate data collection due to a possible overlap of the required information.

Data collection for the CRS is more comprehensive than data collection for FATCA. Differences between both tax transparency initiatives can make it challenging for financial institutions to use the same due diligence or reporting systems and processes.

CRS/FATCA System Challenges

Many banks find it challenging to comply with FATCA and CRS requirements because of many issues such as outdated data, labour-intensive indicia identification process, error-prone manual workflows, and significant administrative costs. There is still a lot of uncertainty regarding FATCA and CRS compliance management systems. With banks and financial institutions having to alter their operational processes, they now have to provide additional steps in their customer onboarding as well as KYC/self-certification processes. Financial institutions can also be challenged in terms of handling complex high net-worth relationships. The predominant challenges posed by these regulations are:

• Auditing existing records and aggregating all information for existing clients and making sure that they are accurate will drive up overheads and time costs.
• Complex Workflow as FATCA and CRS compliance software solutions is likely to increase the number of operational transactions within the organization.
• There will be a greater movement of information and a large number of rule-based access systems and points will have to be created. These will only create a complex workflow and hamper turnaround times.
• Data accuracy and security will also suffer.

What is needed is a comprehensive workflow manager, an automated system that is fully integrated with core banking systems that has an open architecture that adapts to new regulations. At the same time, the bank needs to make it easy for clients with automated forms.

FATCA & CRS Compliance Software Solution

GDI offers an integrated suite of tools and intelligence, which enables financial institutions to easily manage and comply with FATCA and CRS requirements. Through a centralized dashboard, it electronically searches through all client data and offers compliant customer onboarding with automated reporting. The software acts as a layer on top of existing core banking systems. It looks for the indications needed for FATCA and CRS activities, classifies documents, and creates the required FATCA and CRS full XML package. Banks and financial institutions can then report directly to the IRS or the HCTA. Through streamlined workflow automation of the due diligence processes, compliance staff can handle multiple complex relationships with customers, providing better visibility, control, and data security.

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