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IT departments at the ready as FATCA becomes latest banking regulation

Karl Flinders

IT departments must be prepared for the latest regulation to hit finance firms, known as the Foreign Account Tax Compliance Act (FATCA), which came courtesy of the US Internal Revenue Service (IRS).

The rules, which were introduced this week, mean financial organisations outside the US will have to report their US-citizen customers that have assets with them to the IRS.

FATCA is designed to ensure that US citizens are paying the right tax on their wealth. This impacts the retail, wealth management and investment banking divisions of financial institutions.

According to Wikipedia: “Major European banks such as have been closing brokerage accounts for all US customers since early 2011, citing ‘onerous’ US regulations, which FATCA will make more complex when it goes into effect in 2013.” 

However it said that in 2011 the IRS stated that FATCA would be made simpler for many expatriates.

Daniel Mayo, financial services analyst at Ovum, says while FATCA will have less of an impact on banks than originally thought, it could trigger similar laws emanating from other countries.

“The impact has been less than originally thought because of how the legislation has been toned down,” added Mayo.

He said changes have been made which has reduced scope. This includes only individuals with over $1m being monitored and the ability for UK banks report to UK authorities rather than the IRS

Although the impact on IT will be less than originally thought Mayo says it could spark a regulatory trend that banks will have to be ready to adhere to. 

“I think the interesting thing is that this could be the start of a series of laws from other countries,” he said.

Banks will need to access data about customers that might fit the profile the US authorities are interested in.

Jon Asprey, vice-president strategic consulting at Trillium Software, which helps companies comply with FATCA, said one institution, had as many as 100,000 accounts that “have data issues needing manual investigation before they can be confidently verified as either subject to, or not subject to, FATCA,” he said. “That’s potentially many thousands of hours of work.”

But FATCA is just one regulation among a seemingly bottomless pit.

Financial services regulation is an industry in itself with 140,000 pages of regulations published over the last two years, but organisations could streamline the process of meeting regulations by getting IT involved in the process earlier.

Speaking at a recent Ovum financial services IT event, PJ Di Giammarino, CEO at think tank JWG-IT, said that, due to the explosion in regulation since 2008, IT departments and their suppliers need to be closer to the decision-making processes. 

“There is little activity at a bank that does not depend on IT," Di Giammarino said. "IT has to be at the table during impact assessment.”

He said many IT departments are involved late in the process. “Change requests come into IT late because they are not involved early on,” he said. “IT and data are not thought of in the first instance, but more of as a consequence. But IT needs to be accountable across compliance projects.”


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