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Solve classification - not just FATCA

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Solve classification - not just FATCA

November 2012
Fiona Cummins
Product Manager

FATCA is on everyone’s minds right now, with many financial institutions trying to figure out cost-effective and efficient ways to comply with this new IRS-driven regulation. However, it is important to remember that FATCA is not the only regulation.

FATCA is on everyone’s minds right now, with many financial institutions trying to figure out cost-effective and efficient ways to comply with this new IRS-driven regulation. However, it is important to remember that FATCA is not the only regulation. In fact, it’s only one of many similar regulations that are expected to descend on financial institutions over the coming months and years – all of which will have a substantial impact on compliance and onboarding teams in every financial institution.

The challenge for compliance and onboarding teams will be – how to manage all of these regulations – each with their own specific data, process and technology nuances – to ensure full compliance that does not impinge on client satisfaction or experience? This is a pretty hard balance to achieve given the imminent onslaught of expected regulation.

The good news is that there is a common denominator shared by a number of these new regulations. Take for example – FATCA, Dodd-Frank, MiFID II and the 4th EU Money Laundering Directive. Each of these share one common regulatory challenge – that of client classification. As part of these regulations, all will require:

  • some sort of client identification and classification process according to specific indicia or criteria,
  • the application of appropriate risk ratings, and
  • the evidencing of entities, usually achieved by getting clients to produce documentation or to  complete forms to confirm their status vis-à-vis indicia/criteria.

And more good news still is the fact that the document requirements and form-filling are pretty much consistent across all of these regulations – making the implementation and maintenance of compliance processes, standards and technologies more achievable.

FATCA is the most pre-eminent of all of these regulations at the moment, resulting in a lot more focus being paid by financial institutions to complying with this - first and foremost.  And that’s as it should be. But what happens when the next classification regulation rolls in? Another scoping exercise, another process review, another piece of technology to be bought?

Instead of solving FATCA, financial institutions should be solving classification – the common thread running through a lot of the newly emerging regulation. By adopting a classification framework instead of a FATCA-specific point solution, it means that financial institutions can solve the immediate regulatory requirements in FATCA but position themselves to solve other classification regulations that are on-stream to be implemented over coming years.

In this way, FATCA becomes a stepping stone to solving compliance challenges for other regulations. The aim is to solve once, extend and re-use. This’ll not only help to keep the compliance technology spend to a minimum, but it also means time savings in terms of searching for and implementing new solutions for every regulatory nuance that comes along. 

So what should you be looking for? Try to identify FATCA solutions that are flexible enough to go beyond FATCA itself (and all the variations and flavours of FATCA that may emerge in the UK, Switzerland, Japan etc.) and solve other classification-based regulations with a simple extension to the compliance software. You’re looking for a solution that requires no further IT procurement and no heavy input from tech and ops teams – just flexible configuration to adapt to new rules dictated by the specific piece of regulation.

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