Are you American or a Citizen of the World?
In one of my earlier blog posts I made some general statements about the evolution of FATCA into GATCA. I also mentioned that knowledge and awareness are two key building blocks for most financial firms. Our GATCA Resource Library, which recently launched online at and via the GATCA app, already has over 580 documents in it and its growing by the day.
Whilst creating the GATCA Resource Library, one of the particular things we did was to make the documents not just searchable but consistent. One of the issues that most firms have is that the regulators who issue documents don’t use a global standard date format, nor do they use anything like an intelligent file naming convention. What would you think of a library where the book titles made no sense and the publication dates could be mm.dd.yy or dd.mm.yy but you wouldn’t have any easy way to tell which was which? Well, if you take the principle of GATCA i.e. the globalised approach to detection and prevention of tax evasion, you’d think that this kind of thing would be standardised down to its roots. Not so. It’s true that the OECD has tried to standardise some things but has appeared to studiously avoid standardising others. The use of standardised and electronically transmissable investor self declarations (ISDs) to replace certifications of residency is one great example, although, even within the OECD, the CRS group has designed an ISD without a claim of treaty benefits in it, while a different group (still within the OECD) has designed one that does. Now that comes from both groups having a different remit, but come on guys, how hard is it to coordinate this stuff so that industry gets a holistic and workable solution?
So, when we’re talking to firms about GATCA, my first question is always – have you got a centralized resource for compliance and everyone else in the business that ‘needs to know’. The answer is usually ‘no’ and even when the answer is ‘yes’ I find that the materials are incomplete, only available to a few, and no-one has thought to make the document names intelligent.
I also come across a lack of ‘currency’. By this I don’t mean dollars and cents, I mean how current is the resource and how, when something changes, do you get the information out to those who need it? We designed the GATCA Resource Library to generate notifications so that when we update the library everyone gets a short email message telling them what’s changed.
Now, I mentioned ‘others who need to know’ and this is because I keep coming up against firms where all the knowledge is in one place – the compliance or tax function (rarely anywhere else). However, the GATCA framework is consistent in that it requires everyone in a business to have ‘relevant and appropriate knowledge’. For example, relationship management is at the forefront of GATCA’s objectives. The firm can do what it likes with clever systems and data mining to look for ‘indicia’, but those on the front line have an obligation to understand and implement both ‘reason to know’ and ‘actual knowledge’ rules. Their problem is that they are facing an increasingly knowledgeable and educated client population. It’s no longer enough to just say ‘I don’t know’ or ‘that’s a compliance issue’, relationship managers are supposed to have some knowledge both to protect their firm’s compliance and reputation, and also to make sure they are giving good service to clients.
Take an example from FATCA, which is one of several parts of the GATCA Resource library. In those regulations, the firm has to know if its client is an American. They can do most but not all of that through in-house systems, but the relationship managers may have critical information gathered through face-to-face contacts or email. There are six ‘tests’ to identify whether your client is an American. For individuals they are: documentation, birthplace (citizenship), parental, green card, substantial presence and other US indicia. In the iOS GATCA app, we built these tests in as ‘tools’ so they can be administered in situ. This doesn’t get you away from the fact that, in a GATCA world, you should no longer be asking whether your client is an American. With over 100 countries committed, you need to know how many countries your client may have a tax liability in and each country will have its own rules for what triggers that requirement. That means, particularly for private wealth and funds industries, any single investor’s accounts may end up being reported to more than one ‘foreign’ government.
You might have been able to cope with FATCA through more complex onboarding paperwork, but you won’t be able to cope with GATCA without taking a very different approach.
Image Credit: Lucas Photo
Ross McGill is the CEO and subject matter expert for TConsult. Ross is a specialist in QI and FATCA operational compliance, cross border tax reclaims, relief at source and information reporting. He over 23 years of experience in financial services, including 19 years at C level; and 30 years’ senior management experience in blue chip FMCG, including sales, marketing and operations.