Ravi Vasantraj, Global Head - BFSI Practice, Tech Mahindra
How are Asian banks and financial institutions responding to the Foreign Account Tax Compliance Act (FACTA)? Ravi Vasantraj, Global Head - BFSI Practice, Tech Mahindra, has some answers.
What is FATCA and what are its implications for Asian banks/FI?
The Foreign Account Tax Compliance Act was enacted by the U.S. Government in 2010 to improve tax compliance with regards to offshore accounts of U.S. residents. Foreign Financial Institutions (FFIs) will need to identify and to report information about accounts held by U.S. taxpayers and by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
Financial institutions globally, including those in Asia, will need to make significant process and technology changes to comply with FATCA.
This challenge of compliance is magnified by the number of jurisdictions in which the FI operates and the variety of products it offers. It has been estimated that the financial services industry globally will need to spend billions of dollars to comply with FATCA.
How are Asian banks and FIs responding to FATCA? Recently, the Asian Bankers Association (ABA) said there is a need to come up with the best approaches to mitigate the adverse impact on their operations of the FATCA implementation. How do you see the situation here in terms of response and preparedness?
Many countries in Asia are already discussing inter-governmental agreements (IGAs) with the U.S. Internal Revenue Service (IRS). Hence, banks have already set internal deadlines for setting up processes and systems for FATCA compliance. Having said that, Asian institutions are relatively behind their Western peers which had kicked off their FATCA projects more than a year back.
Banks are now in the process of shortlisting vendors for FATCA implementation and the need of the hour is a solution that is ready for multi-jurisdiction compliance for FATCA and similar regulatory initiatives which can minimise impact on existing systems and can work along core systems.
There are quite a few myths that need to be addressed. For example, FATCA isn't a major issue if there are not many U.S. clients. The fact is that institutions will still need to check and prove that there are no U.S. clients.
The other myth is that a simple check on Know Your Client (KYC)/ core system is sufficient. In most cases, data resides in multiple systems and would need to be cleansed and aggregated.
As an IT solutions company, what is your solution to this problem? Does it facilitate compliance?
There are several options that customers have for FATCA compliance. These range from doing it in-house, enhancing existing systems like KYC or doing it manually. Each has its pros and cons.
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