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Facing FATCA: Unravelling the IT solution confusion

Colin Camp, managing director of Dion Global Solutions, feels that FIs are finally coming to terms with the reality of FATCA, and must now decide how to address the demand placed upon them.

August 14, 2013 | Colin Camp

Despite initial belief that the Foreign Account Tax Compliance Act (FATCA) requires just enhanced data checking and storage capabilities, it is clear that the regulations affect multiple areas of one’s business. As such, FATCA demands a four-stage response, which can be summarised as follows:

• Identification of relevant clients by checking data against specific indicia for both existing and new accounts.
• Remedial case management for identified accounts and/or missing data, including document storage.
• Calculating withholding tax as required.
• Amalgamated reporting on transactions and balances to the IRS and other tax bodies and clients.

These requirements place significant pressure on the processes and workflows throughout financial institutions’ (FIs) businesses. Institutions have a number of options available to them and must decide which will offer them the best route to meeting the new and complex demands of FATCA.

The first option is to continue with manual search, identification and remediation processes. For smaller FIs with a relatively homogenous client base, this appears attractive at first look; but even for these institutions, the manual effort involved will be extensive. FATCA requires that every new and existing client be checked against every indicia on an iterative basis and all findings must be confirmed, proved and recorded in an auditable fashion. When performed manually, there is a real risk that large amounts of confidential information could be shared improperly. Furthermore, recording auditable data is expensive, thus the costs and risks outweigh any perceived cost-benefit associated with manual processing.

The second option is to update existing client systems. As with manual processing, there appears to be cost benefits - in terms of capital outlay and operational expenditure - to this approach. However, given that FATCA touches numerous aspects of one’s workflow, multiple...

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Keywords:Colin Camp, Dion Global Solutions, FATCA, IRS, Data Security, FI