CRS Reporting: The Challenges and Lessons Learned from the Early Common Reporting Standard Adopter Nations

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The below is a review of the Marcus Evans Webinar that was hosted in conjunction with BearingPoint on 30 March 2017. The session covered what lessons can be learned for financial institutions from the early adopter countries of the Common Reporting Standard (CRS) when it comes to their financial reporting obligations. In addition to this we were able to host a live software demo of FiTAX, BearingPoint’s all-in-one tax reporting software solution for CRS and FATCA reporting.

The Common Reporting Standard is often referred to informally as ‘GATCA’ in that while its remit is modelled on the United States’ Foreign Account Tax Compliance Act (FATCA) of 2010, it’s scope is global with the entire breadth of OECD nations and many others encompassed within its reach.

Under the CRS, banks are required to determine where in the world their clients are registered as ‘tax residents’. In the event that a client is a tax resident outside of the country where they bank, the financial institution is required to report details of the client to the national tax authority of the country in which the account is held.

The sheer scale of the CRS poses significant challenges for banking organisations whose clients are spread across the world. Navigating multiple tax jurisdictions, managing significantly larger volumes of data reporting in comparison to FATCA, and adhering to an increased number of data validation rules are just a few of these challenges. All the while, banks will be operating in the acute knowledge that more changes are inevitable and that the timeframe to implement their own CRS reporting functionalities is now extraordinarily narrow.

Since 2001, BearingPoint have been working with banking organisations around the world to assist with their tax reporting functionalities through their bespoke software solution FiTAX. FiTAX has been continuously tweaked and built upon by BearingPoint in response to each major reporting regulation introduced subsequent to its launch and as such, FiTAX now houses individual modules that are able to handle reporting functionalities such as FATCA, UK FATCA and CRS amongst others.

Transaction reporting under CRS rules is already underway in the early adopter OECD nations, with the late adopter APAC nations following close behind.

Lessons Learned by BearingPoint from Early Adopter Countries

Our webinar session kicked off after an introduction to BearingPoint from Ronald Frey, with a presentation from Fabrice Chatelain, Senior Manager on the FiTAX project at BearingPoint. Fabrice discussed the company’s experiences working with the early-adopting, OECD nations on their CRS reporting obligations.

On the differences found between FATCA implementation and CRS implementation, Fabrice’s primary takeaway was that there are simply more tasks to overcome with CRS compared to FATCA reporting.

From the increased volume of clients concerned, to the wider range of local tax authorities that are involved in the reporting process, through to the prospect of constant regulatory changes in the future with limited time to implement responses; CRS reporting represents a far more complex and fluid reporting proposition than FATCA ever did and therefore the challenge to keep up with its requirements are that much greater.

When it comes to the key success factors for banks doing their CRS reporting, Fabrice recommends 4 essential behaviours:

• Keep up to date with regulations. Ensuring that your practices are in line with the multitude of local rules, guidelines, bilateral and multilateral agreements is a necessity for effective CRS reporting. Ensure that either yourself, or your reporting partner are managing this brief.
• Data quality. Continuously check the consistency of your data and ensure that it is compliant with the latest regulatory requirements.
• Flexibility. The regulatory landscape is constantly evolving and CRS looks to be no different. Your reporting systems and processes must be able to adjust to new regulatory requirements as they come in.
• Reporting to clients. This practice is commonly viewed as an ‘added extra’ when it comes to a bank's CRS reporting. However by integrating a report to the client alongside your regulatory reporting, the client will feel valued as you have gone out of your way to keep them informed of the reporting activity that is taking place around their account. It is the small touches like these which build strong relationships between a bank and their customers.

Through conversations with their clients and by observing global trends, BearingPoint have identified a clear movement towards the centralisation of reporting functions around the world.

The benefits of centralising tax reporting functions in BearingPoint’s mind are clear cut. As the data involved in CRS reporting is so immense in its volume, it makes sense to manage all of it within one system.

To use the example of FiTAX, having a software solution that can manage the different forms of tax reporting (FATCA, CRS, UK FATCA, etc.) via individual modules within the solution helps to streamline the collation of your data for all reporting regimes.

Outsource, Build or Buy?

Deciding upon which reporting solution road to go down is a vital one. You should factor in the nature of your organisation when making your choice.

One question that often comes up when discussing reporting solutions for CRS is what solution route is best to go down. Should a bank outsource their entire reporting functionalities to a third party?

Would they be better served by building an in-house solution or adapting a pre-existing reporting solution to manage CRS as well? Or by purchasing a pre-built solution?

• Outsourcing. Financial institutions may opt to outsource for strategical reasons. An organisation may simply not have the resource available internally to manage the volume of data and obligations that come with CRS reporting. One constraining factor to consider however when outsourcing tax reporting functions is the management of sensitive client data,.
• Build. A bank might decide upon developing an in-house solution in order to establish differentiation from the competition. They might also have specific client needs which require extensive customisation, that other third party vendors are simply unable to provide. However bear in mind the need for internal tax expertise as well as the capacity to take on the long-term project, along with the hidden costs that can come with such an undertaking.
• Buy. A financial institution would find appeal in buying a ready-made solution from a third party vendor in a number of areas. They can offer standardisation, readiness and flexibility, quality and economies of scale. It is important however to consider the experience of the vendor and their time to market when making your decision.

With early adopter countries having now carried out their CRS reporting for Q1, the later adopter countries are not far behind and the banks within them are now all under enormous pressure to put in place reporting functions that will meet the requirements of the new CRS regulations.

There is no one size fits all solution to this challenge that will work for every financial institution out there, but BearingPoint’s centralised reporting solution FiTAX has been constructed with flexibility and the current trends in reporting regulations at the forefront of the design and implementation process.

To learn more about how BearingPoint’s vast experience in tax reporting can ease the burden of your tax reporting, and to see FiTAX in action, be sure to download the free webinar below.

CRS Reporting: Lessons Learned from Early Adopter Countries

Thomas Bannister
Intern

Marcus Evans
101 Finsbury Pavement,
London, EC2A 1RS