Cape Town, 24 Jan 2017
FATCA provisions became part of the South African Tax Law following the signing of the Intergovernmental Agreement (IGA), requiring financial institutions to report non-South African investors.
In addition to the existing FATCA requirements, SARS recently implemented the Automatic Exchange of Information (AEOI) Common Reporting Standards (CRS) provisions from the Organisation of Economic Co-Operation and Development (OECD). Financial institutions now have a legal obligation to review all of their account holders in line with FATCA and CRS specifications, and to identify specific accounts for reporting to SARS.
While FATCA only focuses on identifying investors who are tax residents in the United States, CRS has a much broader scope, and over 100 countries have signed up to participate with CRS. SARS has adopted a wider approach to CRS and now requests data on all foreign persons, and not only those from CRS compliant countries. This has led to a significant increase in the volumes of reportable persons that require additional follow-up and remediation to ensure the relevant account holders are reported.
Implementing manual processes to support the remediation activities was previously sustainable, but with the higher volumes, increased automation has become essential in managing administration costs. At a high level, the basic steps to being compliant are easy to understand. However, when looking at the details of what is required and the number of processes and systems that are impacted, it turns into a complex problem to solve. For example, while confirming the reporting status of a company may seem straightforward, there is, in fact, specialised knowledge required and different pieces of information that need to be requested, stored and interpreted to successfully complete this process.
In some cases, financial institutions underestimated the effort required to put all the provisions in place, and implemented manual processes, and they now need to reassess their approach. Others viewed the FATCA implementations as tactical, manual or temporary, while waiting for clarity on the CRS requirements, and as a result, these processes are unable to scale. These now need to be reassessed for CRS. For financial institutions facing these challenges, IT solution providers such as Saratoga can develop solutions to help them deal with the increased volumes in CRS reportable persons and remediating them.
Senior management is seeing increased administration and servicing costs and is requiring teams to justify the mounting costs for ongoing FATCA implementations. These management teams often don't understand that complying with this form of legislation requires prior investments in capabilities such as master data management (MDM) systems, centralised CRM or similar systems. In Saratoga's experience, these kinds of implementations are much easier and far more cost-effective when these enterprise capabilities already exist.
While many financial institutions' compliance, risk or tax teams have knowledge of what the legislation requires, converting this knowledge into repeatable processes with supporting technology solutions is not a core competency of these teams. As experts in business processes and systems, Saratoga teams gather input from the subject matter experts, match this against the current processes, and then work with them to realise the required business change. This process requires a multidisciplinary approach and knowledge of solution design, change management and solution implementation.
Solutions to some of the initial business problems created by FATCA/CRS compliance have already been solved and these solution patterns are well known within mature organisations. For many financial institutions, the new challenges are with regards to integrating these solution components within business processes that haven't necessarily required these capabilities, resulting in a much larger initiative that often crosses functional or departmental boundaries.
How Saratoga can help:
With the first round of CRS reporting scheduled for May 2017, it is crucial to ensure your organisation is compliant and internal processes are in place for reporting.
Financial institutions with limited time to implement a solution or with teams struggling to unpack the implications of CRS within the organisation would benefit from the existing knowledge and experience of the Saratoga teams. With specialist expertise in both process re-engineering and change management, Saratoga's teams can greatly reduce the administrative burden of compliance. The company's track record of working with multi-jurisdictional investment administrators and retail investment companies enables Saratoga to provide efficient and sustainable FATCA/CRS compliance solutions.
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