'Gatca' Takes Shape

With the first deadline for "Gatca"—the global version of the US foreign tax reporting regime that requires financial institutions based abroad to provide reports to the Internal Revenue Service on their US clients—passing on January 1 for compliance from new account openings, industry awareness of the next stages in its implementation is on the rise.

Formally known as the Common Reporting Standard (CRS), Gatca's next steps involve putting in place common standards among national jurisdictions by March 2017 so that information about new and all other relevant accounts is in the correct format, says Mark Davies, Avox general manager and managing director at DTCC [Depository Trust & Clearing Corporation] Europe. The DTCC's Avox unit provides legal entity identifier (LEI) information for reporting.

The CRS, which was devised by the Organization for Economic Cooperation and Development, has 53 countries on board and about 80 others that have agreed to sign up to the standard. The actual reports of tax information under the CRS will be made to national tax authorities in each country or jurisdiction.

"Gatca is ultimately going to save firms a huge amount of bespoke activity for tax reporting across multiple jurisdictions," says Davies. "There are a number of ways that financial services firms can meet the requirements. No two organizations are the same when it comes to tax reporting or client onboarding systems and policies."

Some firms are leveraging Fatca work they have already completed, says Davies, although the CRS is not intended to function as an extension of Fatca or of US authority. "Ideally, firms will have a consolidated solution that can be used in multiple jurisdictions and would span the organization, including all early-adopting jurisdictions," he says.

Signing On for 2017

The task ahead for most firms involves setting up a master that incorporates all additional data points, different formats and standards, says Davies. "This could involve centrally mastering all the information about customers," he says. "For some organizations still operating in jurisdictional silos and systems, it will be aggregating all that information to produce a consolidated set of reports."

The level of readiness for CRS varies among industry firms, Davies says. "Some firms will have prioritized other reporting activity ahead of this in the knowledge that there's more than a year in which to finalize and perfect their CRS reporting," he says. "Many organizations, even those that may be further down the line in implementation, can still be in complete control in that they know they will get to the deadline and be able to report."

The compliance environment in many firms is such that their specialists capable of managing data for the purposes of regulatory compliance, and devising how to apply resources to data operations, are dedicated to other regulations with closer deadlines than CRS, Davies explains. "Until next year, it'll be very difficult to judge whether the industry is in a position to execute and meet all the requirements," he says. "In 12 months' time, we'll definitely see."

Though a recent update to CRS agreements made with the OECD may give many firms and markets more time, when Inside Reference Data asked Davies what the state of readiness should be in six months' time, he said: "Any organization that doesn't have a plan in place by the middle of this year to meet the March 2017 deadline would certainly be behind.

LEI Reporting Benefits

As an LEI services provider, Avox sees an ancillary benefit of more LEIs being issued and assigned as a result of Europe's revised Markets in Financial Instruments Directive and its accompanying regulation, and Davies expects a similar benefit to accrue from the need to adhere to the CRS.

"Some 400,000 LEI codes have been issued now," he says. "That's a relatively small subset of the total entities that the industry trades with and reports on an ongoing basis, but as that population grows, clearly the level of data quality and the ability to maintain that data and remove duplication will rise. So there are absolutely knock-on benefits for tax reporting."