On 1st January 2016, the Common Reporting Standard came into effect in more than 100 countries. If you work at a large bank or for a central government body, you would have heard the whispers. The Common Reporting standard, commonly known as the CRS, is the world’s answer to the US FATCA (or another version of it).
Conceptualized by the OECD states, this regulation provides a template for information exchange between countries at a global scale to make life difficult for all tax evaders. A fantastic idea isn’t it? But then why is it making regulators and compliance officers around the world shudder?
There’s many degrees of data exchange with a lot of back and forth depending on the quality of data. And that’s leading to a new wave of challenges for the regulators.
- Say hello to Complexities: The number of parties involved are infinite. We were grumbling about having to deal with ONE regulatory authority with FATCA. With this regulation, we now deal with MANY. With the large number of agreements signed and exceptions to those, countries don’t know how to move forward.
- Say hello to Know Your Customer 2.0: There is a new monster in town and it’s called Know Your Customer Plus Plus. Even the most customer centric organizations are going to have a tough time updating and procuring client information for all nationalities. If FATCA raised the stakes of KYC , CRS has taken them to an all new level. For example, rules can’t just be applied to find US persons they now need to be applied (potentially) on persons from various nationalities.
- Say hello to Reporting: So FATCA is not going away and CRS is here to stay. So how many types of reporting will we need to comply to? With separate deadlines for reporting for CRS and FATCA, it will be interesting to see how governments react to these. Will they come out with one single reporting format or will they tend to work with multiple formats.
- Say hello to Uncertainty: Two/three weeks ago the new format for FATCA reporting was released (v1.2). And this won’t be the last update. That’s 2 years after FATCA came into effect. So where will CRS go?
Having said that, its not all dark and stormy. Here is how you can move forward…
If you’re a bank
- Don’t keep waiting for your Local Tax Authority: One of the biggest lessons we saw in case of FATCA is that if you wait too long you will have a much harder time. You should start by reviewing your KYC data and processes. The earlier you have a sense of where you are on the quality of data the better.Pro Tip: A great approach taken by one of our customers was to start their KYC projects even before their FATCA/CRS projects started. By the time the tax authority brought out the guidelines they knew exactly the work that was needed to be done.
- Talk to your clients: FATCA was difficult to explain to clients. CRS will be too. It is important that you prepare your clients for what’s to come.Pro Tip: Send out some informational emails and letters to your clients to make them aware of CRS.
- Build to evolve: It will be really tempting to find a quick fix solution. FATCA was not a quick fix and neither will CRS be. You need long term planning with an eye on the future. Create a foundation that can evolve and grow as the regulation does.
- Adopt technology: Without being biased, going manual will be a very difficult route. You need to evaluate your options and see what is the best way for YOU to move forward.Pro Tip: Agility will be key in any direction you take. Make sure your technology partner provides agile capabilities to handle change. Get in touch with us to understand the smart way to maintain these changes over a period of time.
If you’re a Tax Authority or government
Wait for our next blog. We’ll be covering the tax authority approach in detail.
How can Newgen help?
We can and we have! We have partnered with both with tax authorities as well as Financial Institutions on their FATCA projects. Get in touch with us here, or take a look at our website to get more insight into what our technology and domain experts can do for you.