Compliance headaches and inefficiencies

Regulatory burdens have always been in evidence. However, the landscape has changed greatly in recent years. The banking crisis, Enron et al and increasingly sophisticated, technically savvy and organised fraudsters are all high profile wake-up calls demanding a support network. That comes in the shape of legislation, regulation from professional and overseeing bodies and peer pressure for better practice.

Anti-Money Laundering, KYC, Suitability, FATCA etc mean that brokers, wealth managers and IFAs are exposed to a range of potentially threatening issues. With massive consequences for failure there’s increasing operational effort and expense needed to keep on top. Working practices evolve but, more often than not, they generate increased operational workload. As the burden compounds then you can be sure that the potential penalties for exceptions will also be rising. It’s no surprise that the numbers of compliance-facing staff therefore continue to rise. Against an economic backdrop where efficiency and cost savings are more important than ever this is a recipe for greater overheads with no appreciable return.

This latest Invu white paper examines a selction of issues faced by businesses in the finance sector, in particular the broking and wealth management communities. It’s not exhaustive but it does pick up some of the significant issues faced on a daily basis and some that are on the way. Many of these issues are burdens which IFAs, insurers, mortgage advisors and even accountants in practice face. Whilst setting these out we also identify the role of technology in mitigating them, most notably, of coure, via document based solutions.

Find out what role document solutions can play in mitigating the risks and reducing the day-to-day compliance impact and download the “Wealth Management – the case for eDM” from our resources section at www.invu.net

How are you handling electronic discovery for your documents for FATCA?

The U.S Foreign Account Tax Compliance Act (FATCA) comes into effect on January 1^st 2013 to combat offshore tax abuse. Those caught by FATCA may be swiped with a 30% withholding tax on U.S investment income. For understatements on undisclosed foreign (ie non US) assets there’s a further 10% to add to this.

Foreign entities can avoid FATCA’s swingeing withholding tax as they enter the FATCA regime – after entering into a binding agreement with the IRS to identify U.S persons and to report certain information about them to the IRS. This information is then used to identify potential instances of under-reporting as well as fraud.

But how is such information collected? FFIs must retain all paper and electronic documentary evidence establishing the identity of account holders for 10 years. As is to be expected records must be accurate, up to date, consistent, retained for specific periods of time, and readily available for certification and auditing purposes. And this latter point is the key – all documents must be electronically searchable. The IRS will want to be able to run some sophisticated data collection, recognition and analysis tools over high volumes of data. No more hefty physical files of information or, if you do persist with these, then they will need to be digitised. 

Because of these requirements firms will need to adapt their systems and operational processes of January 2013 – this is a significant undertaking for many organisations, least of all those with multiple customer platforms. FATCA will be applicable for all types of financial institutions – the operational system needs to be in a position to detect U.S clients at the moment when an account is opened, as well as the entire lifecycle of a client through monitoring.

The efforts needed to fulfil these obligations can be substantial for a financial institution and can require specialist knowledge and assistance – knowledge which can be aided by a supplier of such a system with an understanding of the Act itself. Some firms are even taking the view that they will no longer broker for US citizens.

Getting parochial for a moment, it is essential that organisations caught by FATCA review all their internal systems. Much of this should be in train already, but the disclosure elements and, in particular, electronic searchability/ discovery means that how firms handle, store and retrieve documents will be at the heart of this.  Discussions with a document or content management provider should be high on the immediate agenda. A good provider will be able to call on a strong understanding the act, and be able to guide the organisation through the requirements and suggest any changes which may be needed to current systems in order to meet FATCA and other compliance requirements.