CRS and the 3 Ways It Will Change the Banking Industry
- Chiara Gelmini, Business Practice Manager at Appway
- 10.04.2017 10:15 am banking industry
To begin, let’s talk about what the Common Reporting Standard (CRS) is. In short, it’s a compliance standard for the Automatic Exchange of Information (AEoI) developed in response to a G20 request.
CRS’s goal is to identify who pays taxes in which countries, and it does this by gathering data exchanged between different jurisdictions. This data is then put into an annual report. CRS is often referred to as “The Global FATCA (Foreign Account Tax Compliance Act),” but the two regulations are actually very different.
Not only is CRS’s scope broader, it also requires new documents such as self-certification. Financial institutions establish and maintain these documents, since IRS forms are not acceptable. Further, legal entity classification varies a lot between the two and CRS doesn’t impose withholding requirements, unlike FATCA. This means that if FATCA implementations have been executed, little profit can be made from them.
CRS is far reaching, since many countries exchange information. And because of this, CRS will affect the industry globally in many ways.
What are the 3 major changes to look out for?
Internal Policies and Operations
Since CRS aims to achieve global tax compliance, it will affect due diligence processes and the classification of products and entities. It will also influence information collection, data quality assessment, and readiness to exchange, as well as the setup of specific reporting procedures. Last but certainly not least, every jurisdiction will be closely monitored to ensure adherence to the law.
CRS adds complexity to client lifecycle management, from onboarding onwards. This not only impacts operations and costs, it also influences client satisfaction since clients will have to provide extra information and documentation. Thus, time to service also slows.
Financial institutions must include CRS requirements in their data protection terms to explain why CRS collects client data.
Already, nearly 100 jurisdictions adhere to CRS. Since December 2016, more than 50 countries committed to CRS have set up over 1,300 bilateral exchange relationships. The first exchanges will begin in September 2017.
As you can see, CRS has the potential to create a lot of hassle for banks. But CRS isn’t the only compliance standard that banks need to consider. We at Appway understand how hard it is to master constant regulatory change. To find out how your bank can stay ahead of changing compliance rules, join our upcoming compliance webinar.
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