Consider this scenario: A global bank has 50 million clients from which, on an annual basis, it must identify those who are U.S. citizens or U.S. residents. It must also be able to produce evidence of why identification decisions were made on any account at any time.
This is the new world of FATCA.
Few banks have the time or resource to keep up with these needs, making automation a necessary solution. Now add the breadth of customer information required for Anti-Money Laundering (AML), suitability and managing customer information is an endless cycle.
More and more frequently, banks are facing regulations that require them to identify specific information about their customers and accounts to align to regulations. To comply with Know Your Customer (KYC), for example, banks must perform substantial due diligence to ascertain information about their clients in order to do business with them.
Due to FATCA regulation, new laws are emerging around the world that require companies to identify client citizenship as governments recognize the opportunity to create revenue from their extended citizenry. In April 2013, the governments of the UK, France, Germany, Italy and Spain announced that together they would develop and pilot a multilateral tax information exchange in which a wide range of financial information will be automatically exchanged amongst the five countries. The intent is to deter tax evasion and take a step toward wider multilateral automatic tax information exchange.
All of these regulatory advances share a common denominator: They are identification-based. They rely on the financial institutions’ capability to identify and analyze characteristics of its individual client accounts.
We find that most financial institutions address each new government requirement with a regulatory-specific technology approach. As such, each tool may be housed within a specific compliance environment. For example, there are likely institutions today that will buy a tool capable of supporting in-depth customer knowledge but use it only in a FATCA compliance environment. While the tool may have broader capabilities that could be utilized across the enterprise, its use is limited to its primary regulatory purpose. This creates inefficiency and lost opportunity.
Leading banks are not just solving the FATCA “problem”; they are creating a FATCA solution that has the capability to expand to meet broader customer identification needs. In so doing they are investing once and utilizing that investment in multiple ways – as a way of tackling other areas of compliance as well as boosting their technology backbone for onboarding, sales, CRM and more.
Consider the customer identification needs for FATCA. This same customer knowledge can make onboarding faster and more efficient. Housing all of this customer information in a central repository gives the financial institution a much better capability to address the suitability of products for a customer’s investment objectives, conduct targeted marketing, and ultimately increase “stickiness” with that customer by engaging them in a broader portfolio of services specifically relevant to them.
Clearly the immediate need for a FATCA technology investment is to support a regulatory mandate. But putting in place a solution for a single regulation, FATCA or otherwise, can be expensive. By expanding the technology use across a broader spectrum of regulations a bank has the capability to be more efficient in meeting additional identification-based regulatory needs as well as building customer knowledge to leverage for competitive advantage.
There is no question that it takes more forethought and perhaps more up front cost. But faced with a myriad of ongoing needs to process volumes of customer information, banks must stop thinking the way they always have – get some technology in to satisfy regulators – and look more broadly and strategically across the organization. Banks must consider both the regulatory changes coming their way and the business opportunities deep customer knowledge presents.
The FATCA deadline is fast approaching, but by taking the time to align a FATCA regulatory technology solution with broader enterprise needs banks have the opportunity to solve the short-term need while building a technology platform that can deliver much greater return on investment for the business.
Erick 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.