Buy Side Faces Heavy Lift on Reporting Mandate
Investment managers face a growing challenge as the deadlines for the Organization for Economic Cooperation and Development’s Common Reporting Standard draw closer.
They can leverage only so much from their experiences with the United State’s Foreign Account Tax Compliance Act and The United Kingdom, Crown Dependencies and Oversea Territories International Tax Compliance Regulations, according to Meredith Moss, CEO of Finomial.
Although all three regulatory regimes require financial institutions in foreign jurisdictions to submit XML-based reports on clients and their transactions to the home country’s tax authority, each requires investment managers to collect different customer data and report it in different formats, she added.
Organizations looking to leverage their anti-money laundering or know-your-client data also will find their data less than useful for CRS reporting.
“The difference between them is that now governments are looking for tax revenue and not only looking for known criminals,” said Moss.
As such, each piece of data used for CRS reporting needs to be positively affirmed.
“Investment managers have to review every piece of investor documentation and data for accuracy to comply with FATCA, CDOT, and CRS on an ongoing basis” she added. “Whereas, in AML and KYC, investment managers need to check names against a database to make sure their clients are not bad guys and you need to make sure that they have a credible story about how they made their money.”
For many firms, this remains a manual process similar to their approach to the first round of FATCA reporting, where investment managers threw bodies at the problem.
“It was a painful experience, and they realized that their processes were not scalable,” said Moss. “They have taken six to nine months to institutionalize CRS reporting because it is a new fact of life. You cannot just use band-aids and then double them each time.”
There are three ways that firms can address their CRS reporting requirements, she added. They can build their systems internally; hire a consultancy to build the systems for them; or license a third-party reporting platform.
“Taking a platform approach enables the investment manager to collaborate with investors not only on compliance but also managing their data,” Moss added. “They can make investor interactions streamlined, electronic and 21st-century.”
More on Compliance:
- First Half of FX Code of Conduct Arrives
- MiFID II Causes Jump in Compliance Spending
- Pimco Taps Markit for Compliance Automation
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