January 21, 2016 - Financial institutions across Asia-Pacific are behind the curve when it comes to being prepared for evolving global tax reporting regulations. That's according to a recent survey by Wolters Kluwer Financial Services and the GRC Institute, which indicates that more than 90% of financial institutions in the region have not started implementing Global Account Tax Compliance Act (GATCA). These firms have no dedicated teams in place and close to 60% have not yet started discussing their strategy internally.
Just as the industry struggles to digest the US Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to provide reports on US clients to the Internal Revenue Service (IRS), the sequel to FATCA – the Automatic Exchange of Information (informally referred to as GATCA) – is already taking shape, and is set to drive additional data requirements, cross-border coordination and client information reporting.
The results of the survey, conducted in December 2015, show that nearly 90% of financial institutions are taking a "tactical" approach to FATCA reporting, of which the large majority are tackling FATCA reporting manually.
"Taking a tactical approach for FATCA reporting – be it completely manual or semi-automated – significantly increases the risk of being caught out by tax, and with the financial institutions' reputation at stake, any form of regulatory compliance should not be taken lightly," says Wouter Delbaere, Asia-Pacific market manager, Regulatory Reporting, at Wolters Kluwer Financial Services.
While some institutions may be able to use a tactical solution for FATCA in the short-term because of the limited number of reportable accounts, GATCA will be an entirely different ballgame. FATCA regulation encompasses accounts for only one country– the United States – while GATCA covers over a hundreds. Complicating matters further, the US has indicated that FATCA is here to stay, which in essence leaves financial institutions in the awkward position of having to comply with two similar, yet divergent standards," Delbaere adds.
The best-positioned financial institutions will be those that upgrade their existing technology infrastructure to collect and report the additional information required by regulators under GATCA, while simultaneously consolidating and centralizing this information with data used for other purposes. Wolters Kluwer Financial Services suggests this single data repository can be a powerful business asset, forming the basis for meeting all regulatory requirements, including FATCA and GATCA, providing a single window into business activity. A consolidated view can enable institutions to spot and even anticipate trends, flag and address problem areas, and broadly inform planning and strategy throughout the organization.
"Working with a recognized financial technology solutions provider with expertise in regulatory compliance allows the institution to focus their efforts on their core businesses and clients, rather than building a complex framework from scratch -- or worse, contending with the tedious and risky task of generating the reports required by regulators manually," Delbaere notes. "In the emerging regulatory landscape GATCA is helping to create automation and agility that will be the key watchwords for financial institutions striving to avoid sanctions and distance themselves from the competition."