Tag Archives: compliance

FATCA: ingredients for compliance

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Are you sitting comfortably? Are you ready to be served another regulatory delight?

In the spotlight this week, we’ve brought some tax regulation to the forefront. The Foreign Account Tax Compliance Act, or as it’s more commonly known, FATCA, requires foreign financial institutions (FFIs) to gather sensitive data, including balances, receipts and withdrawals, on US account holders and identify accounts for the purpose of reporting to the Internal Revenue Service (IRS). As is commonplace with regulatory changes of all flavours, data requirements go far beyond the current mandatory tax requirements on financial institutions.

However it’s not just more data that binds together the plethora of new regulations facing the financial markets, but also the increasing focus on the quality of data held and analysed by financial institutions. Indeed, as regulators strive for transparency, quality data is the fundamental ingredient to ensuring that new regulations, from FATCA to Form PF, effectively measure and manage what they propose to.

At Asset Control the importance of quality data – what we call Triple A rated data (that has no chance of being downgraded) – has never been underestimated.

Although investment is required to achieve Triple A rated data, the cost of not having it is even bigger; for example, under FATCA, a withholding tax of 30% will be applied to payments made to FFIs if they fail to report or inaccurately classify clients, and that’s without even mentioning the reputational damage that can far outweigh any fines or other financial penalties.

So, if your systems are feeling the stress with FATCA compliance then the indigestion will only persist when it comes to stomaching the full menu of regulatory initiatives being served to the global financial markets. Firms must ensure they have the key compliance ingredient in stock if they are to confidently manage the onslaught of regulatory changes they face in 2012 and beyond.

Taking a consolidated view of counterparty risk

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News of the huge loss as a result of unauthorized trading at UBS this week immediately impacted everyone holding positions with the firm, and  has placed the need for a single common legal entity identifier (LEI) beyond debate. For traders, their clients and regulators, an immediate,  consolidated view of counterparty risk across asset classes, desks and geographies is now a bare necessity.

LEI standards are being developed to replace the intricate patchwork of counterparties and ownership structures that currently comprise each transaction. But, introducing standards on a global basis across the financial services sector has never been easy and discussions on what the impact would be from a practical perspective continue to vex the data management industry.

Nobody yet knows what the final LEI standards will look like and how they will be implemented in practice. One thing that is certain however, is that standardization around legal entities will create a huge data management headache for firms running off creaky proprietary systems. Firms simply cannot afford to try and accommodate the onslaught of regulatory change, of which LEI is only one, from what is, essentially, a standing start.

Indeed, LEI isn’t just another box to tick on an audit or compliance form; it goes right to the heart of a firm’s counterparty risk management and, for fear of sounding melodramatic, being able to respond rapidly is essential to minimize losses, or even ensure survival.

Getting your house in order and putting the right system in place now is essential. Markets move too quickly for firms to respond via manual processes, and spreadsheets alone will be left behind. Moreover,  If you invest in the infrastructure to spot these issues, and take appropriate action quickly, the shape, size and format of LEI won’t be a cause for concern, which leaves you able to focus on even more complex regulatory requirements that continue to cloud the horizon.

An agile approach to accurate data

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Accurate information is the data management industry’s Holy Grail. It’s fundamental to what we do and what our clients do, and its importance is undeniable. But there is more to data than accuracy.

Accuracy by itself is useless if your people can’t get hold of the data they need when they need it. What might have been accurate this morning may not be at the end of the day. So accessibility is critical. There’s also no point in being accurate and accessible if your people can’t then act on that data.

In today’s world, most firms have multiple business units, product lines, and investment strategies – all of which require different data sets used in different ways. Compliance and risk management will need different data sets than the trading desk. Operations want data on actual holdings, while analysts use it for modeling, stress-testing and ‘what if’ scenarios. Clearly there’s no single solution for these distinct requirements.