Financial institutions must prepare for ‘FATCA on steroids’

Financial institutions around the world must ‘get their act together’ for the introduction of the OECD’s Common Reporting Standard (CRS) in seven months, Linedata has warned.

Justin Hayes, product manager at the international software provider, dubbed the automatic exchange agreement between an initial 58 countries “FATCA on steroids’ and an “unparalleled regulatory headache”.

“Financial institutions have just seven months to get their act together as they will be required to track unprecedented volumes of investor information from the start of next year,” he said. “This will be a steep learning curve for fund administrators and investment managers.”

Global exchange
The CRS sets out the financial account information to be exchanged between governments, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as the common due diligence procedures to be followed by financial institutions.

The information likely to be exchanged includes account balances, interest, dividends, and sales proceeds from financial assets.

Hayes said the agreement will provide a new single global standard for the exchange of tax information, and will affect investors who were not previously impacted by the US Foreign Account Tax Compliance Act, which requires FFIs around the world to provide information on their US clients to the US Internal Revenue Service.

“This will be a steep learning curve for fund administrators and investment managers”

“These clients will now have their financial information shared with other jurisdictions on an annual basis. While there is not tax withholding for non-compliance, as with FATCA, financial institutions need to start implementing the changes, because complying with the rules is so involved for affected firms and individual member states may impose their own penalties for non-compliance.”

Early adopters

58 “early adopter” jurisdictions have already signed up to start collecting information for the CRS in 2016 ready for first transmission in 2017, including the UK, Spain, France, Portugal, Malta, the Isle of Man, Jersey, Guernsey, Gibraltar, Cayman Islands, and the British Virgin Islands.

A further 35 jurisdictions have pledged to start in 2018, including Australia, Hong Kong, Monaco, Qatar, Singapore, United Arab Emirates, and Switzerland.

Hayes added that the CRS “could also be intrusive and introduce a strain on” investor and client relations, by requiring administrators to carry out additional checks on investors in order to report to the authorities.

In April, Jason Porter, director at advice firm Blevins Franks, warned that the CRS will leave tax serial avoiders with few options as their international financial data becomes readily available to national tax authorities.