4 steps to fatca compliance acfcs webinar by mindtree final 6-11-14
Post on 12-Nov-2014
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4 Steps to FATCA Compliance
Speakers
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Subhasis Bandyopadhyay.Head – Capital Markets Center of Excellence, Mindtree Ltd.
Sid Sakhardande.Associate Director – Banking and Financial Services, Mindtree Ltd.
Contents
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FATCA – Objectives and Key Guidelines
Impacts of FATCA
Challenges with Compliance
Step by step Approach to Compliance
Indicative Future State
Mindtree FATCA Solution Overview
FATCA – Overview of the Regulation
4
FATCA (Foreign Account Tax Compliance Act) was enacted in 2010. The main objective behind enacting the regulation is to combat tax evasion by U.S. persons - the IRS expects to raise an additional $8+ billion in taxes over the next ten years
Regulation requires Foreign Financial Institution (FFI) to file with the IRS information regarding how much investment income has been earned by American persons
FATCA defines FFI as any foreign entity that
a) accepts deposits in the ordinary course of a banking or similar business; or
b) is engaged in the business of holding financial assets for the account of others; or
c) is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities
An FFI will have to enter into an agreement with the IRS to report on accounts held by US persons. The FFI then becomes known as a “participating FFI”
FFIs that do not enter into an agreement with the IRS, known as “non-participating FFIs”, will suffer a 30% withholding tax on all relevant US-sourced payments
Firms that get impacted due to FATCA include foreign banks, foreign brokerage firms, and also foreign private equity funds, foreign hedge funds, and other foreign investment vehicles
Key Drivers of FATCA
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Addressing Tax evasion
Equipping the IRS with tools to discover and discourage offshore tax abuse
Enable the IRS to get access to information account US tax payers irrespective of investment location
Fixing revenue leakages by collecting taxes from investments specifically designed to shield tax payers from the IRS
Intergovernmental Agreement (IGA) between US and 80 countries
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Foreign Financial Institution 1
Local Tax Regulatory
body
Foreign Financial Institution 2
US Internal Revenue Service
US Financial Institution 1
US Financial Institution 2
US Internal Revenue Service
US Accounts
US Company Owners
Foreign Accounts
Foreign Company Owners
Local Tax Regulatory
body
The US Treasury Department has introduced the concept of IGAs as a means of reducing the impact of FATCA provisions on foreign financial institutions
It requires reciprocal exchange of information under bilateral tax treaties.
Impacted Entities
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US Person Non US Person Recalcitrant Account
BanksCustodiansBroke-DealersMutual Funds
Hedge FundsTrustsClearing HousesPrivate Equity
Private Trade andBusinessPartnershipsStartups
Participating FFI Non Participating FFI NFFE
US citizenEx-US citizenPerson with US indicia
FFI with FATCAAgreement
Retail Institutions
Impacted Functions within Banking and Financial Services
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On-boarding & Identification
•Capture data on relevant transactions
•Capture waiver docs
•Capture data to determine “US Account” status
Front Office
Client Onboarding
KYC / AMLClient Data
ManagementClient Data Repository
Reporting
Middle Office
Trade Processing
Client Data Interface
Client Reporting
Reporting to IRS
Withholding
Back Office
Payment Withholding
Process
Payment Withholding
System
Process Governance Data TechnologyLegends:
•Validation & Reconciliation of results
•Complete IRS reporting
•Update rules
•Manage credits and refunds
•Withhold on Pass-through payments
Enablers• Standardized
Data and Doc Management
• Standardized Processes & Control
• Regulation Monitoring
• Governance, Training & Communication
• Integrated IT Infrastructure
Activities involved
Impacted institutions have to re-consider their procedures specifically around client on boarding since all checks and balances have to be put in place in order to identify a US resident at the time of on boarding itself
The way in which institutions may be recording and storing client and account data may be inadequate to determine whether a particular entity is in scope of FATCA or not.
There are very few institutions who have all client information readily available at a single place. Usually the data is scattered across multiple product and region specific data stores.
FATCA being an exhaustive regulation, the impacted institution’s staff may not have the complete knowledge about the nuances of the regulation. Such firms have to look for external help to decipher the regulation and identify the impacts to their business procedures.
Challenges with Compliance
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Enhancing Operational Procedures
Insufficient account data
Lack of central customer data
Inadequate knowledge
Challenges with Compliance contd…
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Implementation requires immediate focus on critical tasks to be completed within a stringent deadline.
Multiple systems within the impacted institution’s IT landscape have to be linked efficiently to enable data collation and aggregation for reporting purposes. This may be a challenging tasks depending on how scalable the institution’s IT architecture has been laid out.
Impacted institutions have to enhance their existing applications or in some cases build new ones in order to bring in a robust rules management engine that can identify entities to be reported and also bring in the business intelligence to create the regulatory reports and enable senior executives to monitor the compliance.
Short time frame
Integrating internal systems
Enhancing existing systems
Step by step Approach to Compliance
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1. Analyze the regulation
2. Impact Assessment
3. Future State Planning
4.Implementation
Create inventory of regulations
Analyze FATCA requirements for On-boarding and identification, Reporting and Withholding
Analysis of implementation guidelines.
Assess impact of the regulation
‒ Identify impacted lines of businesses.
‒ Identify Accounts category
‒ Identify impacted systems
‒ Identify impacted processes
Communicate impact across the organization
Strategic decision making on compliance
Consolidate assessment
Identify action plans to mitigate gaps.
Define future operating model
Prioritization of implementation blocks
Initiate regulatory training within the organization
Ensure IT is aligned with the regulatory objectives
Implement changes in policies and procedures
Build / Enhance IT to ensure robust client screening and transaction reporting to the regulators.
Proactively monitor communication from regulators on additions / amendments to the regulation.
Future State of FATCA Implementation
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Data Sources
Payments and Settlements
CustodyGeneral LedgerCore Banking
Client Master Account Master Client On boarding
Cards system
KYC Legal Data
Data processing components
Data load Data validation Data aggregationData transformation
Central Data Repository
Data processing components
Business Rules definition
On going Checks
Re-classificationRemediationKPIs / KRAs monitoring
Alerts generation
FATCA Reporting Tool
1042s reporting 8966 reporting Internal Reports1042 reporting
Indicative representation
Case Study on achieving FATCA Compliance
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Enabling a commercial bank to comply with FATCA
Analyze business processes and identified changes required to incorporate FATCA guidelines
Identified products across geographies that the bank was offering and that would get impacted due to the regulation
Analyzed the existing application landscape and performed an Impact assessment on which application will need to get enhanced to meet FATCA guidelines
Provided recommendation on new technology requirements around monitoring and reporting functions
Devised a roadmap for technology and business process implementation
Identified and defined rules required to implement the client monitoring and classification functions required to identify customers who data needs to be reported to the IRS
Defined the specification reports that need to be provided to the IRS on a monthly, quarterly and yearly basis
Assess business functions and procedures to identify impacts of the regulation
Identify areas of technology enhancements that would be required to meet guidelines set
Recommend on implementation roadmap to make sure that the bank is fully compliant before the deadlines set forth
Bring system changes to onboard new client, monitor US indicia, withhold upon non complaint foreign clients and IRS reporting
Business Need/ Objective
Business Benefits delivered
Domain Consulting
Business Analysis/Due diligence
Program/Project Management
Development
Testing
Services Offered
Mindtree FATCA Solution Overview
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FATCA Solution Overview Identification of reportable accounts Identification of customers with conflicting information for operations team to remediate Customizable periodic automated process for FATCA compliance Secured API for easy integration with customer’s existing business model Custom online HTML / PDF report generation engine Secured gateway for XML file delivery to SFTP Direct Integration framework for easy integration with customer’s existing system
Key Features
Data model typically support approximately 80% of business requirements and is scalable to support any specific requirements.
A flexible, reusable, extensible and easily customizable architecture to increase adaptivity and faster response to changing customer needs
Accelerated Time to Value in the modeling, design and deployment phase of a project Proven design templates reduce project time and costs Improve Operational efficiency and effectiveness
BusinessBenefits
Built on easy to integrate IBM data model Customizable framework to suit client’s needs Early notifications for errors and deviation from business rules Quick and Accurate identifications of reportable accounts based on built in rules engine Multiple reporting framework to suit one’s need.
SolutionsDifferentiators
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Mindtree FATCA Solution – Functional Overview
Staging Database
Secured API
US Indicia Customers
FATCA Database
Transactions
Income
Fund Database
Accounts Master
Transactions
Income
Customer Database
Individual Customer
Entity Customer
Deposits Database
Fixed Income Database
Stocks Database
Reconciliation Customers
Reportable US Accounts
ReportingStaging AreaSource Systems
Custom Online
Reports
Data Mart
E TL
LAYER
FATCA IBM
Data Warehouse
XML files through
sFTP
Direct Integration
FATCA
RULES
ENGINE Workflow for
Operations Users
Questions & Answers . . . .
“Let’s unleash possibilities”
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