Devil in the Data: Making the FATCA Deadline Requires Automation

Amidst the 540 pages of FATCA regulation, companies can quickly discern two important implications for their business: it will add time and cost to ensure compliance is met by the first January 2014 deadline. As discussed in our previous article, compliance with FATCA is likely to increase the time required for investment managers to onboard a new client, which can already take 30 to 60 days. The complex customer due diligence requirements investment managers are required to comply with, and factors such as multi-nationals utilizing a spectrum of financial products, multiple geographies and various risk factors defined by the Anti-Money Laundering compliance program, will affect client onboarding productivity. Additional increases in time and cost around FATCA compliance include:

- Implementing change, especially in siloed organizations - Impact on Customer Experience - Potential transition from manual Know Your Customer process to automation - Lack of existing core banking, information management and compliance system agility - Technology Enhancements

Given the looming deadline, volume of transactions and accounts involved, along with the training required on the new on-boarding program, taking advantage of technology to automate and accelerate the process is the best way to reduce costs and ensure compliance. There are three key elements to consider when making sure your technology solution achieves its full automation and accelerated compliance potential.

The first element is to make sure that the technology solution is centralized. To centralize the technology solution for FATCA compliance, institutions must ensure:

- Enterprise technology Integration (i.e., on-boarding systems, CIF, CRM, End to End Sales Process) - Unified KYC and Client On-boarding Information/Case Management - Full or 360 view of the customer institution wide - Ability to reuse customer information (KYC, CDD, EDD) in tangent with rule-based automation

Another reason on why centralizing the process is important is that many of the current and emerging regulations are based on identification type information. For example, AML/KYC, Suitability, FATCA and many of the new Dodd-Frank legislation are building a centralized system that allows a financial institution to leverage their existing technology. This allows them to address new and changing regulatory programs quickly and efficiently.

Multinational institutions must solve the complex problem of establishing and maintaining compliance in each geography and product line not exempted from FATCA law. Many companies have approached the issue by allowing each line of business to develop its own solution. However, trying to access different data silos in different lines of business is complex and sorting through transactions across multiple countries to ensure the proper information is reported will be an incredibly challenging task. Simply put, having one global approach and centralized repository with country-specific processes is far more efficient than trying to integrate a number of siloed solutions. In addition, by having each siloed group performing their own due diligence increases the chances that a customer who has multiple accounts at the same financial institution may be treated differently thus opening the financial institution to inquiries and possible fines.

Secondly, rules-based technology combined with system-embedded FATCA expertise customized specifically for the financial institutions FATCA risk profile and acceptable tolerance can significantly reduce costs and time-to-revenue while streamlining operations. By tapping into the necessary legal knowledge up front, banks can implement a rules-based technology solution that will automate the vast majority of processing around client data, performing due diligence, reporting, withholding record-keeping, validation and audit. For banks operating in multiple countries, the solution will need country-specific legal advice.

Finally, in considering automation alternatives, banks know that changing front-end processes, core banking and onboarding systems to accommodate varied transactions is a significant effort that can be high risk and slow to complete. The approach should be coordinated in the least disruptive way possible. A “plug in” solution that leverages existing systems and is capable of communicating with existing technology may be faster and more flexible in the long run.

The technology and automation components of the FATCA solution can make a significant difference in the overall cost and time investment the financial institution must make to implement and sustain FATCA compliance. In aggregate, a robust, future-proof FATCA compliance system should: - Comply with local and U.S. requirements; - Automate applicable FATCA exemptions; - Manage complex rules across multiple jurisdictions, lines of business and products; - Manage and automate pre-existing account due diligence requirements; - Sustain reporting, withholding, verification and record keeping protocols; and - Include strategic flexibility to build on your institution’s existing Know Your Customer (KYC) systems. You may be able to use existing data captured for AML and KYC regulations. - Be leveraged for additional identification based regulations;

Through rules-based technology that enables automation and straight-through processing companies will be well on their way to efficiently and cost-effectively manage FATCA, IGAs and other future regulatory requirements.

Erik Christensen is the vice president and head of compliance practice, and Aaron Kahler is the director of anti-money laundering compliance, at Capgemini Financial Services.