That said, reaching FATCA compliance will be a significant bellwether on the strategic use of newer technologies.
(To view a video with Simon Moss and Steve Crosby, managing director at PwC, discussing the challenges of big data and regulatory compliance and a new way of addressing them, click
One can be forgiven for making the mistake in thinking that FATCA should mean a fairly simple management and analysis of a customer’s relationship. Indeed, one would think that after pouring billions of dollars in data integration, CRM systems, reference data models, compliance, Patriot Act and credit risk regulations over the last decade, a clear understanding of the customer relationship is a simple query.
It’s not, because each regulation, each project, each new application has been approached and deployed as a separate project, often independent from others. That seems counter-intuitive since many projects and endeavors rely on the same underlying data – transaction, customer, product and accounting. Yet the way applications have been developed and deployed and regulatory solutions addressed has created a plethora of independent, separate and poorly leveraged projects, independent from the others.
One of the most significant changes to current practices imposed by FATCA is the requirement to look across what have traditionally been silos of information of customer and account data to identify indicators of U.S. status, i.e., U.S. indicia. Requirements call for the collection and review of disparate sources of account information for new and pre-existing accounts as part of a financial institution's account classification under FATCA. Now, financial institutions must monitor account data across relevant systems for changes that impact the classification of the account, e.g., introduction of U.S. address, U.S. telephone, etc., and will also be required to reports new information under FATCA, e.g., aggregate recalcitrant reporting, closed/transferred accounts, etc.
To comply under FATCA, a financial institution must establish a sustainable solution for tying together the patchwork of disparate systems in a way that can be quickly implemented to meet the aggressive FATCA timelines with minimal impact on core business platforms.
As a result, FATCA becomes an exercise of onerous proportions:
find and identify the customer;
make sure they’re the right customer;
determine where the customer, deposit and investment information is linked;
normalize the customer, deposit and investment data to multiple reporting formats;
perform indicia checks across the linked databases to identify U.S. financial accounts, which may not have been properly documented during onboarding;
optimize the aggregation so it doesn’t take too long to run;
reconcile the results so when a large net worth customer receives their annual FATCA reporting and the IRS gets their concomitant form, the reporting financial institution got it right.
Yet this process is not dissimilar to the process that credit risk asked for in 2000, the same for CRM systems and cross-selling opportunities as well as Patriot Act and know your customer requirements
Of course, FATCA is more than a look-back exercise. For example, on new accounts it relies on a “standards of knowledge” requirement. This essentially mandates that data from all relevant, disparate data sources get to the tax operations team. To do this do you either modify numerous core systems or hope to complete the project in time or do you create an external repository to capture and process, which still could present obvious data integration/quality/cross-referencing requirements?
Going forward, all accounts will need to be monitored for changes in status. This covers potentially more than 20 attributes across many different systems, monitored not just for changes but whether any change introduces something that potentially requires additional documentation from the client.
So the question is what’s missing in all this? Why are we spiraling into the same processes, exercise and expense that we have done in the past? As we see it, what’s missing is something that simply, intuitively connects data without the burdensome, expensive, time-consuming data mapping and normalization project and drives down cost, stimulates new ideas and can be leveraged by more than the original project.
In other words, missing is a connective tissue that uses only essential data relevant from any data source, any system and any technology, making it available in real time for analysis and reporting, no matter what requirement for the analysis is. Needed is agility in access to global data sources, no matter where, what application or technology they sit on. Crack that code and FATCA becomes a manageable project, instead of another never ending data-management mountain.
Indeed, FATCA can become a platform for innovation. The interesting thing about FATCA is that it’s forcing function to understand a global relationship of high net worth customers (including their ownership structure) within a financial institution. If the relationship can be dynamically harnessed rather than held in a rigid, burdensome technology silo like other projects and regulatory responses in the past, considerable opportunities begin to open up.
Of course, understanding your client enables cross-selling to be more effective, gives more issues for the relationship manager to discuss and enables testing and building of new products and ideas. In essence, CRM technology again begins to get exciting, linking product innovation to transformational technology that has been somehow relegated to an electronic rolodex lately.
Let’s also not forget the data that once made accessible and easy-to-work-with, FATCA will address significant parts of Dodd-Frank, begin to simplify the process of on-boarding and KYC and allow for the testing of new products and innovations that can be expanded to other customer segments.
Problem is, this knowledge isn’t available, this agility still wanting. If it were, FATCA compliance would be relatively easy to achieve.
So either we make the same mistake as we have in the past – another separate project, supported by another large systems integration project, another large burdensome data project. Or we build for the future – one that enables agility in product development, flexibility in use of data and transparency across the enterprise.
Fortunately, FATCA imposes a discipline that, if correctly deployed, can be effectively leveraged. A project presupposing extensive data mapping and normalization across a plethora of disparate customer databases won’t succeed – it’ll become another sunk cost, with more finger-pointing at regulators (who think this data should be at your fingertips) and more wasted maintenance dollars.
So FATCA is an interesting test for us all – repeat mistakes of the past and set up another expensive, poorly utilized silo that satisfies only one regulatory goal. Or see the opportunity it offers in gaining transparency and leverage into the activities of an incredibly important segment of your customer databases, a baseline for new innovations, customer opportunity and a foundation for significant competitive innovation.
The key is do this quickly, cost effectively and with a design that enables intelligence created to not just go to the IRS but contribute hugely important intelligence about your customers to help your strategy, product innovations and relationship competitiveness.