Michael Shashoua: Focusing on Fatca’s Readiness

The US Foreign Account Tax Compliance Act (Fatca) has received more coverage by Inside Reference Data in recent weeks—and for good reason. Listening to speakers during IRD’s webcast last month, one wonders whether firms will be able to comply by the July 1, 2014, deadline.

Aside from the level of readiness indicated by an informal survey during the webcast, a full 15 percent of respondents had yet to start considering Fatca measures, which creates complexities for data collection and management surrounding the securities that are taxable under its rules.

Jacklyn Osborne, HSBC’s Americas chief data officer, points to one particular complexity created by Fatca—privacy and security of collected data. Firms will have to revise and redistribute their agreements with clients concerning data collection, as a result of intergovernmental agreements (IGAs) between the US and several countries, which mandate collection of data about the clients for tax purposes.

There are also differences in the IGAs from country to country, which create multiple facets for Fatca compliance, says Steve Young, CEO at consultancy, Citisoft. He advocates a metadata repository as a solution to manage all the new data to be generated by Fatca.

While some of the missing pieces to Fatca have been filled in by new IGAs, there is still a lot left for the US Internal Revenue Service (IRS) to define. The delay of the deadline by six months shouldn’t give firms false comfort, says Young. “Anyone who is using a potential delay as a contingency plan is being very naïve,” he says. “Relying on predicting governments and legislators is not an approach I would recommend.”

The industry is starting to see the importance of data management with respect to Fatca compliance.

Managing Client Data
Firms can analyze the data collected for know-your-customer (KYC) and anti-money laundering requirements to prepare for Fatca compliance. This offers at least one shortcut. HSBC aligned its client-onboarding teams for Fatca and KYC as a result, notes Osborne. “Core client attributes like name and address overlap,” she says. “How to leverage that and ensure consistency is one of our key focus areas.”

Large firms have the resources to coordinate large data stores, but smaller firms working on Fatca compliance contend with high data volumes flowing at high speeds. The advantage they have over large firms is that they can be more nimble at catching exceptions. Large firms have to turn their battleship on a dime to do this, as Amir Halfon, chief technologist of data services provider MarkLogic, describes: “At a larger firm, you really have to make that part of a much more formalized process.”

Nonetheless, those larger firms will have to be prepared, since more IGAs are being established, extending Fatca’s reach. Trillium Software’s Jon Asprey, says the Group of 20 countries have international tax information sharing on the agenda, so expect nations to start instituting their own versions of Fatca.

“Many of the banks we work with anticipate that they will have to provide tax information to an increasing number of jurisdictions going forward,” he says. “This means that understanding the quality and completeness of their client data is becoming an increasingly important process.”

Recognizing the Challenges
The industry is starting to see the importance of data management with respect to Fatca compliance, recognizing the challenges involved—including managing data operations resources, coordinating multiple pieces of data and multiple storage locations, and addressing privacy and security concerns.

The outstanding question now is whether the industry will heed Young’s advice. Certainly, a host of tasks await those that haven’t already dug into the planning and work involved. Even though the situation seems fluid, with more IGAs likely as well as more guidance on Fatca compliance, not to mention the possibility of Fatca emulations from other countries, the industry ought to devote more attention and resources to this area of regulation.