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FATCA Leveraging existing IT solutions for compliance

FATCA Leveraging existing IT solutions for compliance. Jeroen Dekker, Senior Product Manager. Financial Crime Risk Management. SWIFT Poland National Member & User Group, December 11, 2013. Once upon a time, in a new land called AML…. Core Banking. Onboarding. Monitoring. Agenda.

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FATCA Leveraging existing IT solutions for compliance

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  1. FATCALeveraging existing IT solutions for compliance Jeroen Dekker, Senior Product Manager Financial Crime Risk Management SWIFT Poland National Member & User Group, December 11, 2013

  2. Once upon a time, in a new land called AML… CoreBanking Onboarding Monitoring

  3. Agenda • Our Perspective • Quick Introduction to FATCA • What We’ve Been Seeing • FATCA Team Functions • Requirements Round-up • Case Study • Call to Action

  4. FiservInternational Today • Polish Customers: • ING Bank • BZWBK • MillenniumBank • SantanderConsumer Bank • Strongpresence in Poland: • Local office since 1993 • RegionalInternet and Mobile WarsawCompetency Centre • Regional 24/7 HelpDesk • Solutionsserviced in Poland • Core Banking application • Front End and Teller applications • Fraud and Reconciliation Management applications • Custom development services Number 1supplier of software & services to the FS industry for 6 years (FinTech100) • NASDAQ quoted (FISV) • $4.42 bnRevenue 2012 • $597m Free cash flow 17000clients worldwide 70+countries and multiplelanguages 25+yearsexperience 40+employees in Poland 19,000employes

  5. Technology Solutions Across the Institution Processing Services Solutions for managing account-based transactions – reliably and securely Payments Solutions for optimizing all aspects of the payments mix to help you create efficiency and drive growth Risk and Compliance Solutions for proactive risk prevention and mitigation Insights and Optimization Solutions that help you transform data from information to actionable business insights Customer and Channel Management Solutions for attracting, retaining and growing customer relationships

  6. Fiserv offerings around SWIFT traffic Risk / Financial Crime Control / Processing Sanctions Screening Reconciliation AML monitoring Trade Processing Fraud Prevention Payments processing FATCA monitoring

  7. Today’s perspective Solutions Data focus Capabilities Financial Crime Risk Management • Fraud • AML • Sanctions • Corruption • FATCA • Customers • Accounts • Transactions • Anomaly detection • Case Management • Reporting Software Platform Behavioral Monitoring Financial Institutions Industries Regions • Retail • Commercial • Private • Securities • Insurance • EMEA • ASPAC • LACC • NA • USA 1000+ clients Market leader

  8. What is FATCA? • Foreign Account Tax Compliance Act • U.S. regulation to combat offshore tax evasion by U.S. taxpayers • Regulations produced by U.S. Internal Revenue Service (IRS) • Targeted mainly at financial institutions outside the U.S. • Requirements to identify and report certain (U.S.) accounts • Through prescribed onboarding, remediation, monitoring processes • Severe (withholding) penalties for non-compliance • U.S. institutions tasked with monitoring/enforcing • Final regulations published in February 2013 • Phased implementation from 2013 through 2017 A new frontier in Financial Crime Risk Management

  9. How FATCA evolved… and spread • FBI case against UBS • HIRE Act passed in 2010 • Drafts & Notices • IGA Models • Final regulations • Delayed implementation • Guidance • …? Global initiatives: FATF OECD G8 / G20 EU

  10. What we have been seeing Legal IT Operations Compliance (AML) Tax A typical FATCA project team

  11. The Team’s Current Focus Onboarding CDD • Primary processes: • Additional data capture • Forms & procedures • Decentralized approach Core Banking Data warehouse • Task force > Standing central FATCA team • Manage project phases • Database reports for monitoring & control

  12. Phase 1 Changes • Bank Level Parameterization of IRS issued GIIN • Branch Level Parameterization of IRS issued GIIN • Add additional Static Data pages • Create new ‘Foreign Tax Compliance’ pages • Modifications to Customer to Customer Relationships page • Create new ‘Foreign Tax Compliance Exception’ report • Modifications to Bank Profile Maintenance Report • Modifications to Customer Information Maintenance Log • Modifications to New Customer Information Report Fiserv Core Banking – FATCA Phase 1Identification and Due Diligence

  13. New ‘Foreign Tax Compliance’ pages

  14. ‘Foreign Tax Compliance Exception’ report

  15. A Central Back Office FATCA Team – For What? CDD, Core, CRM and Payment systems New Accounts Pre-existing accounts Payments Reporting YourFATCA Team ?

  16. Central FATCA Team Functions (1/2) Act as a second line of control Handle exceptions and escalations Maintain central oversight Prepare for future examinations • Avoid single points of failure • Assure process consistency & correct outcomes • Use automated (double) checking of data • Detect and alert what falls through the cracks • Workflow & case management remediation • Holistic view of final status for all customers • Understand, manage, inform • Produce lists, metrics, special cases • Normalization across all operations & systems • IRS or local examiners, internal audit • Show and justify how decisions were made • Audit trails, recordkeeping, reporting

  17. Example 1 – New Individual Client Walks in • Self-certification • US taxpayer • Not US taxpayer • Don’t know • Refuse to answer (pending) • Does KYC data reveal any US indicia to contradict a claim of ‘Not US taxpayer’? • Do we have enough KYC data to verify such claims? • Did we receive Self-Certification, and receive it on time? (90 days) • Alert ‘US taxpayer’ for second line approval/classification • Alert ‘Don’t Know’/ ‘Refuse’ for escalation AutomatedDetection • KYC data • Address(es) • Phone number(s) • Nationality • Country of birth • Identification, etc. Once a year - Report new US accounts whose aggregated balance on December 31exceeded $50,000 FATCA Status

  18. Example 2 – New Entity Client Walks in • Determine Chapter 4 classification during onboarding • Capture address, ownership and business type data A tool for the back office FATCA team can provide: Scenarios to verify Chapter 4 status against available data Escalate classification issues to the FATCA team Alert Passive NFFEs with owner(s) with US indicia Daily alerts for changes in circumstances

  19. Central FATCA Team Functions (2/2) Remediation of pre-existing accounts Periodically determine reportable accounts Prepare, validate, generate, send reports Perform ongoing monitoring • Project best led by centralized back office • Ingest hits from electronic/paper searches • Manage tasks, documentation, decisions • FATCA status and current (aggregated) balance • Periodic automated selection & data collection • Prevent duplicate/repeat reporting • IRS XML Form 8966 or local equivalent • Controlled and auditable process • Don’t underestimate data and workflow • On all new and pre-existing accounts • Location, structure, ownership, their location • Payments to non-consenting accounts/FIs

  20. Issues Not Tackled Today • Forms required during onboarding/remediation • Ongoing tax reporting to IRS • Withholding (determination, calculation, execution)

  21. Example 3 – Existing Account Remediation CRM Core System X AML Import US indicia hits as alerts Case Management Workflow Tasks Document capture Classification Reporting … and check against balance thresholds and exemptions for relevance!

  22. Tooling Requirements Round-up • Data on customers, accounts, balances, transactions, process • Automated analysis, detection rules, alerting • Workflow and case management • Regulatory reporting • Management reporting • Audit trails • Flexibility for future requirements (FATCA and copy-cats) If only there were such a system…

  23. Client Case Study Global insurance and wealth management firm Agents, locations, business units as first line Corporate compliance as second line Leverage existing system used for AML, Fraud, Market Conduct Add first-line FATCA process outcomes as data feed How they use it Detection scenarios for changes, inconsistencies, notifications Use of case management for remediation, approvals etc. Management reports for counts and lists

  24. Monitoring, Control and Reporting for FATCA Compliance CDD, Core, CRM and Payment systems New account classification Pre-existing accounts Ongoing monitoring Payments withholding YourFATCA Team Data: AML, indicia, payments, FATCA process Detection: verification & monitoring Case management: remediation & audit • Automated checks • Exception handling • Approvals and audit • Central oversight Management Reporting IRS XML Reporting

  25. Call to Action • Use your time wisely • Learn from AML history • Look and plan ahead • Leverage proven capabilities

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