The State of FATCA Compliance


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Pega, Capgemini and partner DLA Piper (a global law firm with extensive experience on FATCA regulations) explore how global financial institutions can fulfill their legal obligations to become FATCA compliant and navigate operational issues and technology requirements.

Presenter Information:

Alan W. Granwell, FATCA Team Leader, of Counsel, DLA Piper LLP
Gerald Francese, Partner, DLA Piper LLP
Reetu Kholsa, Global Director, Risk, Fraud and Compliance, Pegasystems
Erick Christensen, Vice President, Head of Compliance Practice Financial Services BU, Capgemini

This presentation was used as part of a live webcast. You can watch the full recording (with audio) at:

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The State of FATCA Compliance

  1. 1. 11 © 2013, Confidential, Pegasystems Inc. FATCA Update: The State of FATCA Compliance Gerald Francese, FATCA Regulatory Leader Alan Granwell, FATCA Team Leader, of Counsel Reetu Khosla, Global Director, Risk, Fraud and Compliance Erick Christensen, Head of Compliance Practice
  2. 2. 22 © 2013, Confidential, Pegasystems Inc. Preparation for FATCA Compliance Gerald Francese, FATCA Regulatory Leader, DLA Piper LLP Alan Granwell, FATCA Team Leader, of Counsel, DLA Piper LLP
  3. 3. 33 Foreign Financial Institutions(FFIs) Immediate Steps  FATCA will come into effect January 1, 2014, with specific reporting, withholding and certification requirements to phase-in through 2017, and potentially later  Global FFIs will need to assess the FATCA status of each of their Expanded Affiliated Group businesses and determine how those that are FFIs will become compliant  Requirements may differ depending whether a particular FFI is domiciled in: ̶ A non-IGA country ̶ A Model 1 IGA country ̶ A Model 2 IGA country  Implementation of FATCA technology, processes, procedures and protocols ̶ Identification of variances, particularly Model 1 local law variances
  4. 4. 44 Preparation for FATCA Compliance  Milestones: ̶ Project planning to minimize FATCA impact and optimize automation ̶ Due Diligence  New Account On-Boarding  Existing Account Due Diligence  Contracts and Transactional Agreements ̶ Registration ̶ Reporting ̶ Withholding ̶ Compliance and Verification  Monitoring, Testing and Certification  Recordkeeping  Creation of comprehensive timeline for completion of milestones
  5. 5. 55 Project Planning  Determine the FATCA status of entities /lines of business within your Expanded Affiliate Group  Identify conflicts of law for non-IGA countries and cross-border data management issues  Review FATCA impact on other regulatory and contractual requirements  Review opportunities to minimize FATCA impact (ring-fencing)  Determine where automation will drive cost/benefit efficiencies  Consider other opportunities for savings such as entity rationalization  Consider future-proofing for ̶ Evolving FATCA ̶ Future FATCA-like laws ̶ Business change ̶ Other regulatory compliance and reporting requirements that leverage existing KYC and transactional systems
  6. 6. 66 Due Diligence  Pre-existing accounts ̶ Monetary exemptions ̶ Low-value accounts ̶ High-value accounts (enhanced due diligence)  New accounts ̶ New on-boarding procedures ̶ Waivers, where necessary  Contracts ̶ Grandfathering ̶ Collateral and other transactional Agreements
  7. 7. 77 Registration  Timely action to register  Obtain GIIN  Sign FFI Agreement(s), where necessary  Coordination among EAG
  8. 8. 88 © 2013, Confidential, Pegasystems Inc. FATCA Requirements: Integrating Technology, Operations, and Legal to Meet Pressing Compliance Deadlines Reetu Khosla, Global Director Risk, Fraud and Compliance Pegasystems Inc.
  9. 9. 99 Compliance and Verification  Determine how EAG will comply  Appoint Responsible Officer(s)  Development of compliance program  Preparation of audit verification protocols  Develop systems to keep required information and related procedures for prescribed periods ̶ due to the evolving nature of FATCA, date stamping and procedure capture for decisions
  10. 10. 1010 Headlines and Industry Concerns: FATCA WHAT ABOUT LOCAL PRIVACY LEGISLATION? Legal and Operational evaluation of current processes and systems enhancements required to meet deadlines.
  11. 11. 1111 FATCA: January 1st 2014 Impact on KYC & On-boarding Systems for January 1st, 2014  On-boarding  Data, systems, processes, channels, KYC/AML will need to be evaluated and enhanced  For due diligence specifically, FSI must review and interpret:  Products (depositary accounts, custodial accounts, equity and debt instruments, or cash value insurance accounts)  Clients (direct or indirect US account holders, review and categorize into FATCA “Chapter 4” categories  Exemptions  Geographies (IGA jurisdiction, local laws, standard account terms and conditions, new account opening docs, consents/waivers)  Define and create appropriate due diligence rules by LOB, product, customer type etc.  Automate and change as required What do new regulations mean for On-boarding /KYC processes?? Automation is the only way to minimize customer impact and reduce on-boarding time.
  12. 12. 1212 Unifying KYC/Suitability/Sales Platform for FATCA Unified Rules and Processes Multi-Channel Interaction Management Servicing Backbone Integration Apply KYC: FATCA Suitability Approval Activate 3rd Party Legacy Sys Legacy Sys Legacy Sys Web Self Service BrokerPhoneSales Officer
  13. 13. 1313 Global Business: Managing KYC/FATCA Regulations Specialized Rules By Geography and Business Line Risk-based approach to meet requirements Common Practices Differences:  Type of Customer  Product Type  Business Line  Customer Profile  Regulation Business Rule Changes Regulations Change Risks Change Wealth Securities Canada Europe Common CDD/EDD/FATCA Policies and Procedures Global Corporate Governance North America FATCA FATCA US UK Asset Management Investment Banking Dodd-Frank IGA Your bankFSI
  14. 14. 1414 FATCA: Functionality & Legal Requirements What’s required to meet compliance requirements within technology?  Integrate with CIF, tax reporting, on-boarding systems  Master 360 degree customer view across LOB, for ‘customer’ reporting  Manage privacy rules  Data capture and management of relationships (direct/indirect)  Re-use of existing systems  Rules-driven due diligence based on indicia, customer type, product, geography, IGA  Complex relationship management: (Parent/Child) for US party indicia and majority ownership thresholds (i.e. >10% FATCA)  Managing change in US indicia through automation of re-reviews  Rules driving thresholds for diligence levels(i.e. >$1Million for enhanced due diligence)  Look-back automation and management including STP for exempt accounts, auto-case creation, applying the right FATCA type based on customer data (standard, alternate, enhanced, exempt)  Master Customer profile with FATCA data for compliance reviews reporting across LOB and geographies  Reporting & Withholding  Future-proofing: New requirements, products, M&A, new IGA’s Managing legal requirements and operations within technology Large FI’s are using FATCA as an opportunity to update their KYC and on- boarding systems turning compliance into a business benefit.
  15. 15. 1515 FATCA: Pre-existing Look-backs(NFFE/FFI) Auto-Case Creation, Rules defining due diligence requirements, exemptions US account or not? US Citizenship/ Permanent Residence US Mailing/Legal Address Underlying Party US Citizen/ Permanent Residence Articles of Incorporation Country of Incorporation W-9 Form No indicia of US or non-US Underlying/ Related Party CIF/ MDM System of Record System of Record On-Boarding System(s) Output Tax Reporting System Transaction Monitoring ABC Corp Jane Doe John Doe FOLDER John Doe For future re-use of data, compliance reviews, reporting, etc… FOLDER Joane Doe For future re-use of data, compliance reviews, reporting, etc… FOLDER ABC Corp. KYC Requirements -Account(s) -Account holders (Jane Doe, John Doe) -FATCA classification Legacy Systems Integration Decision Auto-Resolve Report to Tax Group Classification Recalcitrant US Account Non-US Account Due Diligence (By Type) Documentation Due Diligence Rules Qualification Value of Account (i.e. >50K) Exempt Auto-Case Creation Master Folder Rules driving due diligence Know Your Customer System USIndicia
  16. 16. 1616 On-boarding Audit & Reporting Rules-Driven Suitability/Product SelectionAge Income Risk Tolerance Investment Experience Investment Objectives Products Booking Location Security Futures • Higher Risk Hedge Fund • Higher Risk Mutual Fund • Lower Risk System of Record Tax Reporting System Rules-Driven KYC Technology Relationship Management: 360 View Unified KYC/FATCA/Suitability Auto-Case Creation, Rules defining due diligence requirements CRM Driver Data Multiple Streams Agility: As risks and requirements change designated business users should have the ability to update rules and processes. ABC Corp Jane Doe John Doe ABC Corp Jane Doe John Doe Bob Smith Acme Country Products Dynamic Risk Rating Driver Data • Type • Risk • Legal/Mailing SDD Requirements EDD Requirements Screening Integration Existing Client Legal Entity/ Booking Entity Underlying Parties Suitability Requirements • FINRA • MiFid FATCA Requirements Web Self Service Broker Phone Sales
  17. 17. 1717 Only way to ensure compliance: Legal, Technology and Operations  Legal interpretation for each line of business, product and geography  Legal interpretation implemented and maintained in KYC/FATCA technology  Leveraging existing infrastructure  Lending privilege protection and confidentiality to the FATCA program (tech & ops)  Issues will be resolved under the cloak of legal privilege extended to all partners  Ability to confidentially resolve FATCA and other regulatory compliance issues with direct regulator contacts  A risk-based strategy and roll-out on a jurisdictional, product and client type basis  Automation of exemptions and pre-existing account due diligence and verification will provide further efficiency, and cost reduction  Agility to ‘future proof’ your technology  100% Auditability  FATCA can become a benefit by streamlining on-boarding and manual processes What approach are complex FI’s following to ensure compliance while saving costs??
  18. 18. 1818 Ensuring FATCA Compliance: Legal, Technology & Consulting Three World-Class Organisations -Managed Service: legal, technology and operational approach -Evaluation of existing infrastructure, data management, systems and operations -Implementation and maintenance of legal advice into Pega KYC solution -Risk-based approach -Remediation of look- back -Proprietary IP legal advice on top of Pega KYC customizable software that facilitates product, client and geographic compliance with FATCA -Privilege to client -Future-proofing and monitoring for legal changes -Pega KYC/FATCA Technology -Legal Advice Implemented by Client’s specific products, LOB, exemptions into Pega technology -FI’S IP layer maintained by Capgemini and DLA Piper as regulations change, new products & geographies added
  19. 19. 1919 What does this mean?  100% Compliance & Audit history based on product, country, LOB  70% Faster On-boarding and time to revenue  Customer Centricity: 360 degree view of a client  60% reduction in manual processing  Ability to extend to full on-boarding, suitability end-to-end sales platform  Agility to manage new risks and regulatory requirements in days vs. months FATCA from burden to benefit. Why are FI’s and Insurance company’s following this approach??
  20. 20. 2020 © 2013, Confidential, Pegasystems Inc. Capgemini: Integration and Configuration Services Erick Christensen, Head of Compliance Practice Capgemini
  21. 21. 2121 Capgemini Integration and Configuration Services
  22. 22. 2222 Capgemini – ‘Compliance Operationalisation’  Analysis guidelines ̶ Customer data extraction and review ̶ Review of the data gathering process and annual review of accounts ̶ Governance and implementing change  Customer Due Diligence Review – pre-existing accounts and new accounts ̶ Tracking of documentation and evidentiary information ̶ Quality assurance of original KYC info  Legal Advisory and Compliance support ̶ Validation of existing process and procedures against FATCA , the Regulations and IGA requirements ̶ Develop (in conjunction with DLA Piper) training programs to ensure employee coordination  Update FATCA compliance requirements ̶ Future proofing for business change, regulatory change, additional FATCA changes and any other regulatory changes
  23. 23. 2323 Capgemini – Business Process Management Capgemini can assist RBS with the following specific tasks regarding the FATCA Process  Segmentation and classification of pre-existing account holders ̶ Segmentation based on account size, geographies, products and clients ̶ Carrying out the cleaning, enhancing and normalisation of the customer database  Gap identification, Verification of documentation and request for FATCA specific documentation from account holders  Review of the data gathering process and annual review of accounts  Gap Analysis and compliance ̶ Validation of existing process and procedures against FATCA requirements ̶ Definition and Assessment for purpose of IRS reporting and system audits ̶ Implementation of verified, replicable, consistent processes ̶ Supported by an ‘industrialised’ change management methodology  Customer Due Diligence Reviews ̶ Collection of customer information, classification ̶ Tracking of documentation and evidentiary information ̶ Ongoing review and verification of customers  Transactional compliance review ̶ Validation of transactional data to ensure compliance to FATCA requirements ̶ Define a process for managing and monitoring control activities ensuring compliance
  24. 24. 2424 Capgemini Data Management  Using Accurate Data to Create Meaningful Information is key ̶ Underlying Data  A customer – centric view is essential to ensure compliance  Integration of diverse applications to provide a single view is challenging  Data Governance & Data Quality standards need to be set and managed with clear ownership  Data sources and new applications require a robust support model for ongoing delivery ̶ Data Analysis & Reporting  On the underlying data there needs to be the right mechanisms to analyze the data  Integration of Pega and other analytical tools are key  Clear definition of reporting requirements to HMRC / IRS, with in-house MI Dashboards
  25. 25. 2525 Capgemini Data Management  Capgemini has a track record of System Integration and Database Development/Data Warehousing within the RBS Group  Capgemini has specialists within the Business Information Management discipline covering: ̶ Master Data Management ̶ Building or Enhancing Data Governance ̶ Data Analysis and Modeling ̶ Database Design and Construction ̶ Extract Transfer & Load (ETL) ̶ Development of Analytical tools ̶ Reporting Requirements and Dashboard development Example: Underlying Customer Data Store(s) Applications/ Analytical Tools Source Systems Reporting
  26. 26. 2626 Verification and Validation Acquire  Training  Existing documents  FATCA experts Build  FATCA Test Repositories  Knowledge documents  Reusable Test Assets Accelerate & Excel  Innovations  FATCA specific test workbench  Competency building programs for FATCA The Capgemini FATCA Test Workbench is a combination of: quality assurance artifacts; best practices; and technologies, which have been developed to provide a head start in testing FATCA Regulation for the banks Our approach on capability building for FATCA Workbench
  27. 27. The information contained in this presentation is proprietary. © 2013 Capgemini. All rights reserved.
  28. 28. 2828 Q & A
  29. 29. 2929 Appendix
  30. 30. 3030 Capgemini Group Overview (2011 full year) Canada United States Mexico Brazil Argentina All over Europe Morocco Australia People’s Republic of China India Chile Guatemala Singapore Philippines Taiwan Vietnam United Arab Emirates Malaysia UK & Ireland 8,977 France 21,307 Benelux 10,391 Nordic Countries 4,538 North America 9,505 Central & Eastern Europe 8,962 Morocco 431 Italy 2,381 Iberia 4,942 India 35,727 Latin America 9,176 Asia Pacific 3,370 Revenue 2011: €9,693 million Operating margin: €713m Operating profit: €595m Profit for the period: €404m Net cash and cash equivalent: €454m Group workforce 119,707 Working offshore 44,467 5.3% 41.5% 37.5% 15.7% Outsourcing Services Local Professional Services Consulting Services Technology Services Revenue by Business Energy, Utilities & Chemicals Financial Services Other Public Sector Telecom, Media & Entertainment Customer products, retail, distribution & transportation Manufac- turing 10.8% 4.4% 24.3% 9.3% 17.7% 20.8% 12.7% Revenue by Industry Cap Gemini S.A.” is a member of the CAC40, listed in Paris ISIN code: FR0000125338 Note: Our brand name is “Capgemini” but the name of our share on the stock exchange is “Cap Gemini S.A.”