The Times They Are A-Changin’ – Country-specific changes for the Automatic Exchange of Information (AEoI)

One of the most significant challenges for international banking groups in connection with the automatic data exchange is the enormous variety of county-specific requirements, which in parts significantly deviate from both standards FATCA and CRS or even go beyond them. On top of that, numerous countries have started to adjust their provisions for the upcoming reporting year, whereby additional need for adjustment arises.

Come gather around people, wherever you roam …

Numerous countries which participate in the data exchange via the Common Reporting Standard (CRS) or have concluded an intergovernmental agreement (IGA) 1 in the framework of FATCA have decided to impose on the financial institutions more or less serious changes for both standards. The underlying problem is that the standards apply for the exchange between authorities, but the communication between the financial institutions can be designed by themselves.

The reasons for that are diverse: In some countries there obviously was the intent to reuse existing communication channels between financial institutions and authorities and therefore already existing schemes and formats have been imposed. In other countries the reporting standards are used more or less, but are, however, enhanced by various additional fields or special provisions on how the standard must be filled. Common examples are that optional fields of standards are to be reported on a mandatory basis in certain countries or on the contrary must not be filled or the references must be created in a certain manner. Furthermore, in several countries the opportunity was used to demand additional data from the institutions, which have no relevance for the actual exchange.

The spread reaches from the minor changes for the standards (e.g. Austria, Germany) to the completely differently designed XML schemes (e.g. Great Britain, India) or even other formats (e.g. United Arab Emirates (CSV), South Africa (PSV)). Some countries use the same scheme for CRS and FATCA and require a joint report, in other countries a separate report is either mandatory or at least permitted. Further requirements partially result from country-specific provisions for the splitting of reporting files according to file size or target countries (e.g. Austria), deviating reporting periods (e.g. New Zealand) and other particulars.

For a financial institution which is subject to reporting only to one single authority, it is a comparatively small problem to adhere to the provisions of this country. Especially for internationally active banking groups it is an enormous challenge, if different provisions which data is to be reported in which manner apply in every country.

… and admit that the waters around you have grown …

In the year of 2017, 49 countries have been involved in the CRS data exchange, whereby more than half of them have deviating requests in any form from the institutions of their countries. Additional 53 countries will participate in the data exchange as of 2018. Already now it can be observed that several countries have issued their own provisions or will do so in future, therefore it can be assumed that in this “second wave” only half of the countries will be able to manage without additional or changed requirements. This is more or less consistent with the experiences from FATCA.

In total, approximately 50 participating countries will have deviating schemes or other particulars which have to be considered. Interestingly, these are especially countries with strong economies, in which financial institutions are often to be found. For medium-sized to larger banking groups it is therefore realistic if between 10 and 40 different countries must especially be taken into account. It should not be forgotten at this point that only “half” of the world is participating in CRS. Sooner or later almost all of the more than 200 jurisdictions will participate, even though some are countries with less significant economies. It is, however, clear that this will intensify the problem.

Another difficulty for larger financial institutions is that the increasing number of participant countries also raises the data volume which must be reported. Depending on the regional distribution an increase by 10 times is quite realistic. As a result, manual or semi-manual processes become increasingly impossible or at least effort-intensive and expensive. Here we will not deal with the fundamental problems of manual processes in detail.

As if this would not be enough, the first countries have now started to revise their previously applicable provisions for reporting in the year of 2018. The financial institutions are therefore not only forced to fulfil the requirements of the new participant countries, but must also consider the changed specifications of the “old” participant countries. It can be assumed that this phase of instability will also continue in the next years.

… and accept it that soon you’ll be drenched to the bone.

It has been shown in the past that the authorities of various countries publish their requirements often very late. If as an international banking group you have to carry out these changes for many countries simultaneously and at short notice, then it is a big challenge. At first we must be aware that these innovations and changes are coming. As disregarding the regulatory obligations is no option, there is no way around it. If the above-mentioned song text line shall be avoided, provisions must be made in time to implement and test already known rules as early as possible and at the same time to have leeway for short-term changes.

Or you have a flexible standard software available with which these requirements can be fulfilled.

Would you like more information? Please contact Rupert Brandstetter.