Don’t break up your Automatic Exchange of Information (AEOI) team just yet. The first round of reporting under the Common Reporting Standard (CRS) might be over, but jurisdictions themselves will soon begin exchanging information using the Common Transmission System (CTS).
For financial institutions (FIs), that means jurisdictions are likely to find gaps between the information institutions reported and what governments actually need. What’s likely to follow is a surge in requests for supplemental information. Financial institutions will have to respond, which means dismantling AEOI teams and reallocating their members to other projects prematurely is a bad idea.
That was one of the takeaways from a CRS panel at the recent combined Tax Operations and Technology Conference and Automatic Exchange of Information Conference in London. Others included insights on the size of CRS, data quality and governments’ insatiable demand for tax information.
CRS Is Much Bigger than FATCA
Compared to FATCA, CRS’ US-only counterpart, CRS requires a far greater number of filings. Representatives from FIs at the London show agreed that their volumes under CRS reporting increased tenfold. One participant from a major global FI went as far as to say that her institution reported fifteen times more data under CRS than under FATCA. Another participant noted that the number of jurisdictions in which his institution reported jumped from 40 to 80 in a single reporting season.
Many FIs also experienced issues with regulators releasing late or ambiguous guidance for portal registrations and schema requirements. A panellist noted that one jurisdiction changed its schema requirements three or four weeks before the reporting deadline, which put pressure on FIs to react quickly to ensure compliance.
Quality of Data is Paramount
One of the biggest hurdles FIs faced in implementing CRS was dealing with data quality, one panellist offered, with many others in agreement. Data quality is driven from the self-certification process to determine which customers’ information needs to be reported in which jurisdictions. The panellist noted that the communication between her institution’s front office and back office had a direct impact on the quality of the data received from customers.
Hindsight is a Wonderful Thing
When asked what they might have done differently in the first round of CRS reporting, participants pointed to offering more training and focusing more closely on automation.
One participant said her employer underestimated the amount of training that was required to prepare the staff adequately for the challenges CRS reporting, and another emphasized that he saw the importance of adopting an automated solution to reduce costs, reallocate resources and ensure compliance.
Governments Have a Taste for Information
Panellists agreed that governments are reaping the benefits of adopting technology in the same way that commercial entities do: to transform their organisations, drive down costs and improve efficiencies. Using technology has allowed tax authorities worldwide to collect more information with the goal of eliminating tax evasion.
Sovos’ Rob Dean added several observations on the topic: technology has become an enabler for governments, the amount of information tax authorities require will only increase over time, and deadlines will continue to move up until nearly real-time reporting becomes a reality.
Discover the risks involved with CRS reporting and how FIs can avoid them.
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About the Author
Scott Freedman is director of product strategy for AEOI solutions at Sovos Compliance. Scott has over 15 years of experience in strategic marketing and product strategy. He has worked for business-to-business software and SaaS solution companies like Thomson Reuters, and with Fortune 500 companies as a business consultant. Scott has a background in law and earned his JD and undergraduate degrees from the University of Chicago and University of Illinois.More Content by Scott Freedman