Legacy systems prove cumbersome to evolve
While digital services companies are typically unencumbered by legacy IT systems, most financial services companies are not so lucky. Generally speaking, financial institutions’ systems were built at a time when granular customer tax reporting simply wasn’t on the table. For these organizations the cost of in-house proprietary solutions has become increasingly uneconomical.
One approach used by financial institutions to overcome the limitations of their legacy systems is to pull together customer data and collate it in spreadsheets and databases. However, the increasing volume of data required by FATCA and CRS can make this process expensive, time-consuming and error-prone.
In contrast, market-leading CTR solutions address customer reporting as an end-to-end process, and tackle it using automated solutions reliant on technology. Building an automated end-to-end CTR governance model in-house is far from easy, however, with major challenges on three levels — people, processes and technology.
The “people” challenges include training, expertise and a very real skills gap. Part of the problem here is that the CTR landscape is constantly evolving as the US, OECD and other jurisdictions adjust their regulations to close newly discovered tax loopholes. To remain compliant in this fluid environment, companies must continually train their people and so that their knowledge is up to date.
This people challenge is also exacerbated by the fact that CRS and FATCA expertise is in short supply right across the industry, and the natural turnover of employees results in a loss of institutional knowledge, making it difficult for organizations to maintain high-quality CTR programs.
The process challenge is about implementation and visibility – while processes may exist on paper, great care should be taken to put them into action in a seamless fashion across the organization, and the Responsible Officer needs to have full visibility of the challenges encountered before he or she signs on the dotted line.
Meanwhile, the technology challenge centers on the fact that CTR compliance is primarily a data issue, and CTR data is all-pervasive. Data capture begins with onboarding and must continue the full length of the customer journey. This includes document collection and validation, monitoring for change of circumstance, withholding and reporting, and every stage in between.