CRM for financial services strikes a sometimes difficult balance between client account management and regulatory compliance. Having deployed CRM in financial services companies for over two decades, it's been my experience that those banks, insurance providers and wealth management firms that design and integrate their processes to accommodate both these objectives simultaneously — as opposed to achieving them with separate processes and systems — lower their cycle times, ease the burden on IT staff and increase staff productivity in a very big way.
In fact, research shows that most leading financial service institutions (FSI) now clearly recognize that primary processes such as KYC, onboarding, householding, AML and other routine customer facing practices are best served within the central customer system of record, which is almost always the CRM system.
Applying this lesson to achieve FATCA compliance gives us a reference point in how to respond in a holistic fashion, for this regulatory requirement and others. It shows how FSIs can avoid creating yet another piecemeal system that results in more data siloes, more system integration, more technical administration and more management of custom applications.
CRM stands for Customer Relationship Management. FATCA is a customer compliance objective. Managing this compliance outside of the core customer management system is a recipe for redundancies, manual processes, fragmented systems and increased IT costs.
FATCA Compliance, a Global Mandate
The Foreign Account Tax Compliance Act was the U.S. government's response to UBS' shenanigans. When the government learned the magnitude of UBS's efforts to hide money and earnings of U.S. taxpayers, it implemented this legislation and effectively deputized every foreign financial institution (FFI) that deals with U.S. citizens. That would be every FFI you have ever heard of.
FFIs now bear the (uncompensated) burden to identify, analyze and report information on U.S. persons to the IRS. In certain cases, the FFIs need to also withhold their customers' money for remittance to the IRS.
It's a no-win situation for the FFIs. If they choose not to comply they will be financially penalized by the U.S. government. More so, it's no secret that the most lucrative investors simply won't do business with FFIs that are not on the IRS compliance list.
FATCA Compliance, More Than Reporting
I won't get into the IRS registrations, Intergovernmental Agreements (IGAs) and other tax and legal actions which are well beyond the scope of this article. But I will share a method to apply technology in order to minimize business disruption and automate FATCA compliance with the least effort and cost.
Some FFIs initially took a short term view that this requirement was a reporting compliance measure. That's an incomplete view as FATCA requires diligent KYC and on-boarding processes. It requires further diligence for varying financial transactions (based on both transaction types such as deposits and aggregate sums as well as varying threshold values per type) and high value accounts. It gets even more complex when identifying PEP clients or applying AML rules.
Taking a reporting-only view, and not operationalizing the needed internal controls into the KYC and onboarding processes, is certain to delay and likely miss some of the primary FATCA indicia criterion. And it's that criteria that ultimately determine each client's FACTA status (U.S. individual, Non-U.S. individual or recalcitrant individual) and inclusion in regulatory reporting. If determining any FACTA indicia criterion isn't integrated into your KYC and on boarding processes, it's pretty much guaranteed that detection will be delayed and some accounts will likely be missed all together.
Automate FATCA with CRM
The needed internal controls and indicia detection can be appended to existing KYC and on boarding processes that are automated within your CRM software. This results in fewer and more complete customer processes, earlier detection and fewer systems for users to use and IT to manage.
Below is simple CRM screenshot which shows a sample on-boarding process guide at the top and indicia criteria which have been added to the on-boarding client data in the form.
The regulatory requirements call for diligence and review procedures for information that is or should be in your CRM system. By capturing this data as part of the KYC, the CRM system can also apply automated workflow rules at the time of client or financial product onboarding.
For example, for clients unable (or unwilling) to demonstrate proof of address, a workflow rule can automatically deliver a W-8 form. It can then file notice that failure to complete the form will require the bank to designate the client as a Recalcitrant Individual and apply withholding.
Or similarly, if a client purchases a financial product such as a current account, annuity or mutual fund in excess of prescribed threshold values (i.e., USD $25,000), the system can automatically include that transaction in the regulatory reporting and can prescribe additional diligence measures. Similar client processes can be applied to other FATCA measures such as the client's annual average aggregate balances.
Trying to build this type of customer data capture, automated processes, information reporting and conditional workflow automation outside the CRM application is essentially rebuilding software capabilities that are already available in packaged software.
Applying a strategic or long-term view and embedding FATCA into your customer relationship objectives, processes and systems can actually minimize the regulatory burden. Even better, it can contribute to financial services strategic objectives such as improving client data quality, engaging clients is social media channels, and growing client relationships.
NOTICE: This article and the content on this website are offered only as a public service and do not constitute tax or legal advice. See website Terms for additional disclosures.