AEOI: Tax reporting doesn’t have to be taxing

With so much attention on FATCA in recent times, the financial services industry could be forgiven for seeing it as the most obtrusive regulation ever to be imposed on them. This view will soon change. Once the Automatic Exchange of Information (AEOI) comes into force, financial institutions will have far greater challenges to overcome explains Colin Camp, managing director of Products & Strategy at Dion Global

While there is no denying the large amount of data that needs to be collated under FATCA, it pales into insignificance in comparison to the customer information firms will need for AEOI. For starters, financial institutions will need to report eventually on over 80 different nationalities. Unfortunately, and unlike FATCA, AEOI has no minimum monetary thresholds and firms cannot hide behind claims of not dealing with specific nationalities. There is also a possibility of different countries requiring different levels of information. This calls for even greater demands of customer due diligence. No simple task, particularly for firms that opted for the quick fix approach under FATCA instead of looking for a more long term solution.

Under FATCA, many institutions with small numbers of U.S. clients are handling reporting requirements manually. These same firms are also banking on FATCA being handled by their head office, assuming only minimal internal reporting will suffice. As a result, they are relying on existing systems to do the job. This may have work under FATCA, but banks planning to replicate the same approach for AEOI are in for a rude awakening. Reporting volumes are set to significantly increase. This is unlikely to be a small task, with separate reports on different client nationalities for each jurisdiction likely to be required. This puts an even greater strain on a bank’s IT systems.