One of the more interesting ramifications of the U.S. Foreign Account Tax Compliance Act (FATCA) may be another, fairly effective strike against calcified data silos.
FATCA covers tax compliance for foreign financial assets and offshore accounts. The law requires taxpayers with foreign financial assets that exceed specified thresholds to report the assets to the Internal Revenue Service (IRS). The FATCA regulations will also require foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest, according to the IRS
The author of Fenergo’s report, “The Road to FATCA,” Fiona Cummins is Fenergo’s FATCA subject matter expert and she says that some firms have already identified “serious gaps” in their data that will hamper their FATCA compliance. “Client information lying in various repositories right across the institution makes the process of identifying, classifying, evidencing and reporting on U.S. persons/entities with account balances that exceed the FATCA thresholds exceedingly difficult,” Cummins says.
To say the least, firms that need FATCA compliance will have a great incentive to create links between client data and documentation already stored via incumbent repositories to facilitate holistic profiles of customers.
Cummins’ report also cites some other key steps that firms might consider during their FATCA journey:
- Firms can use FATCA as “a stepping stone” to other regulatory initiatives such as the Legal Entity Identifier (LEI) push, and other Dodd-Frank requirements. For European initiatives, a FATCA project could aid compliance efforts for EMIR, MiFID II, Basel III and the 4th EU Money Laundering Directive requirements;
- Once firms have a more holistic view of clients’ data, firms can exploit the data to pre-classify clients and cut the number of clients that must be contacted for self-certification;
- And, overall, firms should strive to automate as much of the FATCA process as possible and use it as an opportunity to gather data that will be helpful in meeting other regulatory and unforeseen obligations.
It’s obvious then that eliminating or subverting data silos opens up expected and surprising opportunities for integration and efficiency. But taking on data at an enterprise level does not mean that the ownership of it goes away to a centralized authority.
Pioneer Investments, an asset manager profiled this week via FTF News, found that data ownership by the internal business units was one of the key issues that emerged as the firm shifted to a centralized data warehouse. The warehouse is used across many business lines including compliance, risk, investment management, investment control, sales and distribution, says Richard Lane, senior manager, Enterprise Data Management (EDM) for the firm. Pioneer is the global asset management arm of UniCredit Group and has approximately $200 billion worth of global assets under management (AUM).
“Pretty much every line of business is represented [in the data warehouse],” Lane says. It quickly became clear that the data owners needed to be identified “so that you can go back to them to confirm questions and resolve issues regarding data quality,” he adds. “You want to make sure data ownership is well defined in advance of implementation. You have to also make sure there’s discipline about the data quality and completeness controls, and that they are being put in place at the same time as the data integration work is being performed.”
Lane’s insights about its successful EDM project can be applied to FATCA initiatives as firms move closer to what has been called “the FATCA cliff” deadline of Jan. 1, 2014.
While there is a long road ahead for firms, some have already done their FATCA homework and sorted out client identification and classification—two-thirds of the Fenergo survey respondents have taken these steps. Cummins noted that once firms have a better grip on client data, they will have a better sense of the scope of the FATCA-related data challenges ahead of them.
To find out more about FATCA and how this regulation will affect your firm, attend our FATCA Breakfast on March 6, 2013 in New York City.