1. FATCA/CRS Preexisting Entity Account Review
Benefits of using third party data to reduce cost and time
and improve the client experience
By David Bolner, Business Development Leader Risk and Compliance, Dun & Bradstreet
The FATCA preexisting account review deadline is fast approaching, at the same time as many
financial institutions (FIs) are also planning their Common Reporting Standards (CRS) preexisting
account review approach, heightening the urgency for them to determine the best way to use data to
improve efficiency and process. Addressed below are benefits of using third party data to improve
both the FATCA and CRS preexisting account review process.
Looking at one example, a large portion of the FATCA and CRS effort requires financial institutions
to reach out to preexisting account holders for new tax forms. Obtaining this client tax
documentation presents numerous challenges to a financial institution and often leads to a process of
multiple iteration that frustrates clients. FATCA and CRS allow an alternative to the standard
approach of soliciting and validating client tax documentation, which can also assist in automating
changes in circumstances monitoring and further improve an FI’s data quality.
Third-party data can be leveraged to classify certain types of entity statuses for FATCA and CRS,
which can ease the effort by eliminating the need to collect and validate IRS Tax Forms W-8/W-9 or
entity self-certifications. Classifying accounts without the need to obtain tax documentation can
save organizations the cost of soliciting and validating tax documentation and improve the customer
experience.
1. PREEXISTING ENTITY ACCOUNTS– FATCA AND THIRD PARTY DATA
REGULATIONS OVERVIEW
FATCA states that a withholding agent may rely on documentation collected by a third-party
data provider with respect to an entity.1
That third party data can be used to classify offshore
entity clients for certain entity types, such as Active Nonfinancial foreign entities (NFFEs) and
International organizations.
1
The third party data provider needs to: (1) Be in the business of providing credit reports or business reports to unrelated
customers (2)Have collected documentation sufficient to determine the Chapter 4 status of the entity under §1.1471-3(d) (3)Have
reviewed all information that it has for the entity and verified that it does not conflict with the entity’s claimed chapter 4 status (4)
Notify the entity that the entity must notify the data provider within 30 days of a change in circumstance (5) Be obligated under its
contract with the withholding agent to notify the withholding agent if a change in circumstances occurs. §1.1471-3(c)(9)(ii)
2. FATCA regulations also state that preexisting accounts, which generally include accounts
opened at a financial institution prior to July 1, 2014, and potentially entity accounts opened
between July 1, 2014 and December 31, 2014, must be properly reviewed, documented and
classified by June 30, 2016.
2. PREEXISTING ENTITY ACCOUNTS– CRS AND THIRD PARTY DATA
REGULATIONS OVERVIEW
The CRS due diligence procedures also provide an exception to the requirement to obtain a self-
certification where the financial institution can reasonably determine, based on information in its
possession or that is publicly available, that the Account Holder is not a Reportable Person.
That is, by utilizing data, an FI can determine that a client is not reportable and therefore does
not have to solicit a CRS self-certification. Data that can be utilized for a non-reportable entity
includes:
- Information published by an authorized government body of a jurisdiction. For example, the
list of Foreign Financial Institutions published by the US tax administration;
- Information in a publicly accessible register maintained or authorized by an authorized
government body of a jurisdiction;
- Information disclosed on an established securities market;
- Information previously recorded in the files of the financial institution;
- A publicly accessible classification based on a standardized industry coding system. This will
include any coding system employed by the financial institution which is based on such a
standardized industry coding system.
Where the financial institution relies on such information, it must retain a notation of the type of
information reviewed and the date on which the review was carried out.
For CRS 2017 adopters, the review of preexisting entity accounts is to be completed by December
31, 2017. 2018 adopters have until end of 2018 to review these accounts.
3. THERE ARE TECHNOLOGY TOOLS TO ASSIST.
An FI has the opportunity to use technology tools that utilize third party data to classify
preexisting accounts for FATCA and CRS. These technology tools match and compare an FI’s
client account information to a third party data source and, once compared, can catalog account
records for certain FATCA and CRS classifications. This solution reduces the need to solicit
and validate tax documentation, saving one costly step in the process. Once linked, the accounts
can be monitored for change in circumstance against a third party data source, improving
3. accuracy and providing confidence in the classifications. This procedure, along with
technology, seamlessly provides the chance for an FI to compare its client account information
to a third party source that can assist the quality assurance and improvement of the account data.
A. PROOF OF CONCEPT FINDINGS - 40% OF FI ENTITY ACCOUNT HOLDER DATA
WAS CLASSIFIED FOR FATCA WITH THIRD PARTY DATA.
Two large global financial institutions recently received meaningful results by providing a
random sampling of their preexisting entity account data to determine what accounts could
be classified for FATCA, utilizing third party data.
First, the FIs uploaded data into a tool that matched their data to a third party source. Based
on the sampling of over 7,000 records, 35%-40% accounts were able to be classified for
FATCA with third party data. For those accounts, FATCAs status was clearly established,
eliminating the need to reach out to clients and request tax forms. Further, during the proof
of concept, the FIs established an additional benefit and were able to improve their customer
account data by comparing it to a third party source. For example, a number of records
lacked data elements, like address or country, and the third party data was able to fill in
many of the gaps, highlighting the value of the third party data.
This analysis shows that, by leveraging what is permissible under CRS and FATCA, an FI can
leverage third party data to improve the client experience, reduce the effort and cost of documenting
preexisting accounts and improve overall data quality.
Disclaimer: This information does not constitute tax or legal advice and is provided for informational purposes
only. Please consult your tax advisor for more information.
