While financial institutions say they feel prepared to meet the reporting obligations they face under FATCA and other automatic exchange of information schemes, such as the Common Reporting Standard, research by an American marketing and technology organisation has found that, in fact, many are not.
While as few as 44% of FATCA filings currently being made turn out to be “accurate and complete”, 64% of those surveyed said they felt they were “prepared” to handle the demands of FATCA and similar AEOI (automatic exchange of information) disclosure requirements, the research, conducted by Boston-based Aberdeen Group on behalf of Sovos Compliance, found.
The research was based on responses from top executives at 100 major financial institutions, which are subject to AEOI disclosure rules that have been drawn up by the US (via its Foreign Account Tax Compliance Act) and, more recently, the Organisation for Economic Co-operation and Development (OECD) to combat tax evasion, Aberdeen said, in a statement detailing its findings. Aberdeen is unrelated to the Scotland-based asset management company.
According to a statement outlining the report’s findings, “a large gap in preparedness exists, with many institutions reporting high rates of inaccurate filings, and fears of significant business impacts, including excessive costs, reputation damage and lost customers”.
“This research shows that financial institutions are far less prepared for FATCA, CRS, and CDOT 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,” said Nick Castellina, vice president and research group director of Business Planning & Execution at the Aberdeen Group.
He added that those companies that have implemented what he called “automatic exchange of information solutions” tend to fare better than those that haven’t.
And those who have failed to adopted have already discovered that this can be costly, the researchers point out, as penalties – which for now are limited to FATCA reporting, since the CRS and CDOT have yet to begin to be enforced – can be stiff.
“On average, over the past two years, respondents have had 6% of their gross proceeds withheld due to non-compliance, resulting in damages to reputation and lost customers, a trend that’s expected to increase as more countries implement mandated reporting over the next two years,” the report’s authors note.
Operational costs, though, are also a problem, the report reveals, with costs up as much as 20%.
“The nature of the problem with AEOI is that it’s changing dynamically,” said Andy Hovancik, chief executive of Wilmington, Massachusetts-based Sovos Compliance.
“It’s no longer a matter of simply automating the reporting.
“Financial institutions must deal with data from multiple systems, spread across dozens of regions around the world, and as a result, we’re seeing financial institutions begin to shift from point solutions to centralised technology solutions that are capable of keeping up with these regulations.”
To read and download more information about the report, click here.