On January 17, 2013 the US treasury and IRS issued a comprehensive document for FATCA (Foreign Account Tax Compliance Act) final regulations. In an effort to reduce the administrative burden to identify US accounts, these final regulations permit a wider scope of identification, as well as use of pre-existing documentation. That should be good news for many of the financial institutions already in possession of payee W-8 forms, for example. However, that same expansion has made the process of electronic search, identification and categorization more complex for many FFIs.

In fact, this was evident in a message I received from my friend Nimesh, who works in IT for a private bank in Singapore. He was struggling with their in-house data mining software to identify and classify their accounts, and was under pressure to get the task done. I knew that these business intelligence (BI) tools could do the job, so the real issue was thinking through and applying the right criteria.

“I hope you would want to start your exploration with the threshold figures of US$ 50,000 for the individual accounts and US$ 250,000 for the entity ones.” I prompted.

“Right. That’s a great starting point to reduce the number of accounts to look at” Nimesh replied. “It would have been a mess if we had not stored most of our data electronically, especially the passport details, without which ‘US place of birth’ would have been the hardest one to crack.

“Don’t forget that Canadians’ have the option to apply for a passport without their place of birth shown”, I sent in a teaser.

“Oh no! So how would I tag them? ”

“The latest regulatory updates suggest that as long as they have their most recent income tax returns filed as Canadians, you may mark them as ‘Foreign’ for the time.” I said, not wanting to stress him further.
“Are there more such nuances in the latest updates? I was working only on US indicia earlier.”
“Yeah, there are documentation alternatives in the form of substitute and non-IRS forms. These forms can be filled out in foreign languages. So you might also want to be prepared with translations to cater for any IRS request and audits.”
“Phew! I’ll need to compile an additional list of acceptable forms for our client’s jurisdictions and check on their availability. If not already submitted with us, I’ll send down chasers to the respective relationship managers”, the growing list of tasks was sounding in his low tone.

“Don’t forget to check on the validity as well, if more than three years old, you’ll need to refresh the documentation,” was an additional input before we switched topics.

The compliance intricacies of FATCA might extend into hundreds of pages, and as this exchange with my friend Nimesh underscores, a thorough understanding of the regulation is crucial, for the consequences of getting it wrong can be significant. Modern Business Intelligence (BI) tools are designed to be used by business staff that need not be savvy to coding-technologies. In fact, interaction with BI tools is more like having a “conversation” in everyday language; so empowered business users who understand the regulation are best positioned to directly interrogate data on the right and relevant questions.

Regulatory compliance is complex, and no single solution can cover every aspect. However, for measurement and reporting especially, BI tools are a powerful resource. They are simple to communicate with and, when put in the hands of a subject matter expert, provide excellent filtering mechanisms to zero in on the desired results in a jiffy.

As more countries look to re-cover tax revenue by implementing programs like FATCA, a bank’s aggregate cost of compliance could be prohibitive. A well-conceived strategy for utilizing BI tools as a cornerstone of a compliance program could provide significant benefits over more traditional IT development and deployment approaches.

After all it comes down to how effectively you converse with your BI tools; it’s all about having a dialogue.

About the Author: Charu Kirti Jain, Product Manager for IMAnalytics, Information Mosaic’s business intelligence software solution. Charu plays a key role within our product management team identifying market needs and to determine specifications for new products. He has worked with financial institutions globally for last 12 years in various consultancy assignments for automation products and services.