Trillium Software aims to ease the data management burden on financial institutions that must comply with the US Foreign Account Tax Compliance Act (Fatca) with data assessment and management services that will help them identify, gather and manage the data needed to meet the Act’s requirements.
For many, compliance will be neither easy nor low cost, with Trillium suggesting that it could cost large financial institutions tens of millions of dollars in data management. The legislation was introduced in 2010 and is expected to be clarified in early 2012 before coming into effect in 2013. It requires foreign financial institutions (FFIs) with US client accounts to share information about those customers with the US Internal Revenue Service (IRS), ensuring that US taxpayers holding foreign financial assets with an aggregate value exceeding $50,000 report income earned outside the US to the IRS. Failure to comply with Fatca could result in a financial penalty of $10,000 for taxpayers and, for FFIs, a 30% withholding tax on all payments from US sources.
Trillium, a data quality specialist and provider of risk and compliance solutions under the Total Data Quality brand, says Fatca will impact financial institutions that interact with US clients and markets, and expects tens of thousands of institutions to be affected worldwide, including banks, brokers, investment firms and insurance companies.
According to Jon Asprey, vice president of strategic consulting at Trillium, “Compliance will rely on the data firms hold and their ability to identify individuals affected by Fatca. Once qualifying accounts are identified, the FFI must contact the individuals and gain consent to send them two IRS forms that the FFI must then get back and forward to the IRS. “Banks are very worried about how they will do this and know that the accuracy of their reporting will only be as good as the accuracy of their data. They also know that anything that can improve efficiency and risk management is welcome and that poor data leads to inefficiency, being slow to market and potential risk points. Some FFIs will do the basics to tick the compliance box, but this is an opportunity for large firms to sponsor projects that will standardise and manage all data, projects that could provide benefits across the business.”
Trillium is working with FFIs of both persuasions, initially offering a Fatca compliance data assessment service that includes a purpose built Trillium data quality platform including pre-populated rules and templates to automate assessment of information, as well as Trillium data analysis expertise and consulting. Essentially, the service provides gap analysis, helping FFIs measure the state of their data for enabling identification of US accounts and sharing information with the IRS as required by the Act. Asprey says Trillium has started work with some FFIs to discover their position in relation to Fatca and data gaps. It will then work with them to automate the cleansing and updating of data, flag data that needs to be scrutinised and may need a manual approach, and consider future client on boarding to make sure business processes are in place to capture the information required for Facta compliance.
“Banks want a quick handle on how hard compliance is going to be to achieve and how much money they need to set aside for it,” he says. “We can offer them a huge accelerator and risk reduction capability, and help them plan and become Fatca compliant. We are sizing and estimating the cost of the problem and next year we will look at the detail of what FFIs need to do and introduce new processes for compliance.” Trillium expects to work mainly on client sites to carry out the data assessment phase of Fatca compliance, but large firms can also implement the Trillium data management platform in house for ongoing use. It is large global organisations that Asprey expects to face the toughest challenge in achieving Facta compliance.
He explains: “Large global banks may have operations in many countries, each with their own way of storing data. Some are setting up to handle data from different regions centrally and they may be able to use existing infrastructure, but if the data has not been pulled together before it will be a headache.” Investment funds, hedge funds, asset managers and private equity firms will also face difficulties as they have complex products and multiple individual investors. “This is a difficult data environment with less clarity around data. Many of these organisations manage funds on behalf of other people and funds are frequently transferred to and from the US by investment vehicles. The need here is for a clear understanding of chains of products and individuals. The compliance process will be complex and rigorous, but not impossible,” concludes Asprey.