Markit is addressing the customer due diligence requirements of the Common Reporting Standard (CRS) with a solution based on its tax and Know Your Customer (KYC) experience, and designed in conjunction with five market participants including Barclays and Brown Brothers Harriman.
Essentially, CRS is a global version of the US Foreign Account Tax Compliance Act (FATCA) that requires foreign financial institutions to submit tax information about US clients to the Internal Revenue Service. CRS is based on an Organisation for Economic Co-operation and Development model that supports the automatic exchange of tax information between multiple countries. Financial institutions in 56 jurisdictions that have already signed up to CRS were required to have stronger processes around due diligence and tax reporting by January 1st 2016, and more are likely to sign up to use CRS ahead of an expected start date for the exchange of information and reporting in 2018.
Markit’s Tax Solutions for CRS identifies tax residency and performs due diligence on customer accounts by validating account data across existing books and records, self certification forms and existing KYC data. Built in logic extracts information necessary to meet particular jurisdictional standards.
Cyrus Daftary, managing director and CEO at Markit CTI Tax Solutions, explains: “CRS is a challenge as it requires reporting to multiple jurisdictions. The need is to ensure that good data is collected when a client opens an account and that the data is managed and maintained to track entities and any changes. This means institutions need good due diligence around entity data including not only name and address data, but also entity ownership data.”
The Markit due diligence tool identifies entities and individuals that must make tax reports, as well as those that are exempt. It supports account opening and remediates pre-existing accounts, validating and monitoring them, and noting any changes that may require further information from the client. As part of the company’s due diligence infrastructure, the solution integrates with KYC information to highlight any inconsistencies between CRS and initial bank records.
The market participants that worked with Markit on Tax Solutions for CRS have deployed the software and are among 30 customers signed up so far. The software is expected to be deployed by banks and used as a hosted solution by Markit’s fund clients.
While the exchange of information and reporting under CRS is not expected to start until 2018, Daftary comments: “Many organisations have spent a considerable amount of time getting to grips with FATCA, which now appears relatively small in scale. To meet the reporting requirements of CRS, firms need to begin to put solutions into operation now.” Tax Solutions for CRS is available across the first 56 countries to adopt the regulation and will be made available in seven languages during the second quarter of this year.