Financial institutions poorly prepared for automatic information exchange

Aug 25, 2016 | FATCA, IRS - Internal Revenue Service | 0 comments

Financial institutions are reporting a number of challenges over compliance with new OECD requirements related to the automatic exchange of information (AEOI) on client bank accounts in foreign jurisdictions, exacerbated by problems complying with the US Foreign Account Tax Compliance Act (FATCA) requirements, according to Aberdeen Group

The study, based on responses from 100 financial institutions subject to AEOI rules found that 64% said they are ‘significantly prepared’. However, research shows less than half of FATCA filings to date are accurate and complete, indicating that many financial institutions may feel more prepared than they actually are, the consultancy suggests.

AEOI reporting obligations are set to expand from nine countries currently to more than 90 with the newly created Common Reporting Standard (CRS) by the end of 2018.

Nick Castellina, vice president and research group director of business planning and execution at the Aberdeen Group, said: ‘This research shows that financial institutions are far less prepared for FATCA, CRS, and crown dependencies and overseas territories compliance than they feel and are putting themselves at risk of significant impact to their profit margins due to fines and the costs of compliance support.’

Castellina points out that penalties, which are currently limited to FATCA, can be stiff. On average, over the past two years, respondents had 6% of their gross proceeds withheld due to non-compliance, resulting in damages to reputation and lost customers.

Operational costs are also a concern, with the report suggesting AEOI requirements saw costs up as much as 20%. As a result, about half of survey respondents plan to implement a centralized AEOI solution, designed to connect data from multiple systems and use up-to-date regulatory rules to facilitate all filings and transmittals from a single solution.

Aberdeen’s research suggested those financial institutions which opted for such an approach recorded a 75% lower increase in costs than their peers.

Castellina said: ‘Top performers are currently 38% more likely to have a centralized AEOI solution. Institutions with these solutions are more likely to be able to automate the cleansing, consolidation, and reconciliation of essential data for filing, ensuring efficiency, accuracy, and compliance.’


Submit a Comment

Your email address will not be published. Required fields are marked *