RiskTech Forum

Wolters Kluwer Financial Services Identifies Data Collection and Reporting Requirements to Assist with FATCA Compliance

Posted: 20 August 2014  |  Source: Wolters Kluwer


U.S.-China Agreement Requires Financial Institutions to  Increase Transparency and Enhance Reporting

Wolters Kluwer Financial Services recommends that financial institutions in China should take steps toward enhancing their data and reporting capabilities on financial accounts held by U.S. taxpayers in China as part of the Foreign Account Tax Compliance Act. This recommendation comes on the heels of an inter-governmental agreement (IGA) initialed between China and the U.S. on June 27, 2014.

FATCA compliance involves a thorough review of information on customers' status and for most institutions, a degree of data cleansing. Under the agreement, financial Institutions are required to properly identify U.S. persons, and in the case where accounts are held by non-financial foreign entities, organizations must report if any of the controlling persons (more than 10% ownership) are U.S. citizens or residents.

"China has initialed a Model 1 IGA with the U.S., which means that the information may not be sent directly to the Internal Revenue Service, but instead through a national reporting body within China. For some multi-national firms, FATCA does require the same information to be collected, but uses different reporting mechanisms to disseminate the information," said James Stewart, general manager of Compliance in Asia at Wolters Kluwer Financial Services. "To tackle these requirements, firms operating in China will need a system infrastructure that effectively and efficiently allows them to meet their FATCA obligation, including reporting in a timely and cost-effective manner while monitoring the quality of their data compliance."

"Another aspect of the Model 1 IGA is the requirement for U.S. banks to also report similar data back to the Chinese authorities, which is a reciprocal arrangement that benefits both countries and affects all banks operating within each of them," said Stewart. "It is a larger task for U.S. banks because many countries demand reciprocation, which means those banks will have to produce many different sets of country specific outputs."  

Wolters Kluwer Financial Services recommends enhancement of Know Your Customer information for firms operating in China. Because firms use much of the same data to produce other regulatory and compliance reporting, this will help ensure consistency across several reporting areas as well as enhance overall data quality.

Wolters Kluwer Financial Services Anti-Money Laundering solution for firms operating in China includes the specific additional flags governing identification and classification for FATCA reporting purposes. The dynamic nature of risk assessment will help a financial organization quickly re-categorize a person or entity to reflect changing circumstances. In combination with the financial data also held in regulatory databases, it is then a simple task to generate the reporting needed, accurately and on time.