Foreign Account Tax Compliance Act (FATCA)

IBM can help you prepare for and manage FATCA

Be ready for FATCA and any other compliance mandates

Turn FATCA and other Compliance Obligations into a Competitive Advantage with Decision Management and Business Rules
IBM Operational Decision Manager for
Managing FATCA Financial Regulations FATCA is a regulation to prevent tax evasion through the use of foreign accounts. It applies to all financial institutions operating outside the U.S. If you are a Foreign Financial Institution (FFI), you will be asked to safeguard the correct taxation of U.S. citizens, identify their accounts and report them to the U.S. tax authority (IRS). In the case of client non-compliance, you will be required to apply a thirty percent tax on all U.S. payments -- withheld at the source of payment.

FATCA affects banks, insurance companies, investment and mutual funds organizations as well as asset management firms. Unfortunately, complying with FATCA will be a challenge due to the following realities:

  • The complexity, ambiguity and instability of the FATCA specification.
  • The operational impact. You will be required to ask more questions when onboarding new clients and opening new accounts -- more due diligence procedures. You will also be required to investigate every time you identify a potential U.S. person.
  • The impact on client relationships. You will be required to investigate your client's status, send information to the IRS, and even withhold monies when appropriate.
  • The need for consistency. For example, you do not want a client of a retail bank and private bank in the same financial group to be considered a U.S. person in one and a non-US person in another.
  • The need for adaptability. Your compliance solution needs to be able to adapt to the specific requirements of lines of business and countries.
  • The need for auditability. You will need to show compliance or be subject to penalties.

Complying with FATCA could require considerable adaptation of your processes and systems, including those related to client identification and documentation, reporting, and customer relationship management.

Preparing for FATCA

From July 1, 2013 onwards, FATCA requirements will need to be implemented step by step within the process and IT systems of your financial institution, so you need to act now if you haven’t already.

Because FATCA requirements are affecting the whole value chain, not just the areas of tax withholding or reporting, an iterative approach is needed to manage the impact of these requirements -- an approach that involves data management, rules, processes and integration.

How IBM can help you prepare for and manage FATCA

IBM can help to you analyze FATCA requirements, design and build your FATCA implementation, and integrate it into your IT landscape, with proven services and methodology. You will be able to quickly start the business analysis needed to define the right work streams, start the project and move to implementation and reporting.

By getting a fast start with the implementation of a first prototype for client screening, you will be able to smoothly do an impact analysis of processes and products, shareholding structure, value chain and partners, as well as IT architecture and interfaces. The business rules capabilities within IBM Operational Decision Management (ODM) will be used to categorize clients and automate decisions while IBM Business Process Manager will ensure efficient FATCA processes.

The value of a rule-based technology solution for FATCA and beyond

Business rule management is a critical enabling technology for managing FATCA, or any compliance use case, because it can efficiently screen all of the attributes related to clients, accounts and transactions, and generate automatic reports. Plus, and this is a big plus, it allows you to make policy and decision changes quickly and safely, with transparency and unquestionable auditability. This is important because FATCA requirements will change.

Once the final FATCA specification is released, you can expect additional changes. For the least amount of pain, you should start building robust but flexible applications that can adapt to change rapidly, at the lowest possible cost. Rule-based decision management provides the power and flexibility to manage the volume and velocity of change required by this regulatory event.

In addition, with Business Rule Management and Business Process Management, you can turn FATCA into a business opportunity:

  • First, the required due diligence will lead to much better understanding of your clients, which can result in more relevant product and services offerings.
  • Second, by automating next best actions with business rules you can balance the cost of FATCA due diligence with better client relationship management in your day-to-day operations. For example, informing a client that you will have to investigate him or her is not easy. Using business rules, you can decide who gets a letter and who needs to be contacted directly. This type of decision automation and support can be applied to other business requirements beyond FATCA.
  • Third, FATCA can be the beginning of an effort to build a more sustainable compliance architecture, which will make any future regulatory changes or mandates a non-event.

If you have any questions or would like to be contacted by a FATCA expert, please email Cecile Poyet: cpoyet@us.ibm.com.

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