Tag Archives: banking
While Dodd Frank received most of the media attention after the great financial crisis, during that period, the U.S. government signed into law the Foreign Account Tax Compliance Act (FATCA) back in March 2010 which will require Foreign Financial Institutions (FFIs) to report the names of U.S. persons and owners of companies who have bank accounts in foreign accounts for tax reporting and withholding purposes.
The law was set to go into effect on January 1, 2013 however on October 24, 2012, the U.S. Internal Revenue Service (IRS) announced a one year extension to January 1, 2014 to give FFIs more time implement procedures for meeting the FATCA reporting requirements. Banks who elect not to comply or fail to meet these deadlines will be tagged as a ‘non-participating FFI’ and subject to a 30% withholding tax on all U.S. sourced income paid to it by a U.S. financial institution. Ouch!!
The reasons for FATCA are fairly straight forward. The United States Internal Revenue Service (IRS) wants to collect its share of tax revenue from individuals who have financial accounts and assets in overseas banks. According to industry studies, it is estimated that of the seven million U.S. citizens and green card holders who live or work outside the U.S., less than seven percent file tax returns. Officially, the intention of FATCA is not to raise additional tax revenue but to trace its missing, non-compliant taxpayers and return them to the U.S. tax system. Once FATCA goes into effect, the IRS expects it will collect an additional $8.7 billion in tax revenue.
Satisfying FATCA reporting requirements will require banks to identify:
- Any customer who may have an existing U.S. tax status.
- Customers who hold a U.S. citizenship or green card.
- Country of birth and residency.
- U.S.-based addresses associated with accounts – incoming and outgoing payments.
- Customers who have re-occurring payments to the U.S. including electronic transfers and recipient banks located in the U.S.
- Customers who have payments coming from the U.S. to banks abroad.
- Customers with high balances across retail banking, wealth management, asset management, Investment and Commercial Banking business lines.
Although these requirements sound simple enough, there are many data challenges to overcome including:
- Access to account information from core banking systems, customer management and relationship systems, payment systems, databases and desktops across multiple lines of business which can range into the hundreds, if not thousands of individual data sources.
- Data varying in different formats and structures including unstructured documents such as scanned images, PDFs, etc.
- Data quality errors including:
- Incomplete records: Data that is missing or unusable from the source system or file yet required for FATCA identification.
- Non-conforming record types: Data that is available in a non-standard format that does not integrate with data from other systems.
- Inconsistent values: Data values that give conflicting information or have different definitions with similar values.
- Inaccuracy: Data that is incorrect or out of date.
- Duplicates: Data records or attributes are repeated.
- Lack of Integrity: Data that is missing or not referenced in any system.
Most modern core banking systems have built in data validation checks to ensure that the right values are entered. Unfortunately, many banks continue to operate 20-30 year-old systems, many of which were custom built and lack upstream validation capabilities. In many cases, these data errors arise when combining ‘like’ data and information from multiple systems. Given the number of data sources and the volume of data that banks deal with, it will be important for FFIs to have capable technology to expedite and accurately profile FATCA source data to identify errors at the source as well as errors that occur as data is being combined and transformed for reporting purposes.
Another data quality challenge facing FFI’s will be to identify unique account holders while dealing with the following data anomalies:
- Deciphering names across different language (山田太郎 vs. Taro Yamada)
- Use of Nicknames (e.g. John, Jonathan, Johnny)
- Concatenation (e.g. Mary Anne vs. Maryanne)
- Prefix / Suffix (e.g. MacDonald vs. McDonald)
- Spelling error (e.g. Potter vs. Porter)
- Typographical error (e.g. Beth vs. Beht)
- Transcription error (e.g. Hannah vs. Hamah)
- Localization (e.g. Stanislav Milosovich vs. Stan Milo)
- Phonetic variations (e.g. Edinburgh – Edinborough)
- Transliteration (e.g. Kang vs. Kwang)
Attempting to perform these intricate data validations and matching processes requires technology that is purposely built for this function. Specifically, identity matching and resolution technology that leverages proven probabilistic, deterministic and fuzzy matching algorithms against any data of any language, capable of processing large data sets in a timely manner and that is designed to be used by business analysts versus an IT developer. Most importantly, being able to deliver the end results into the bank’s FATCA reporting systems and applications where the business needs it most.
As I stated earlier, FATCA impacts both U.S. and non-U.S. banks and is as important for the U.S. tax collectors as well as to the health of the global financial and economic markets. Even with the extended deadlines, those who lack capable data quality management processes, policies, standards and enabling technologies to deal with these data quality issues must act now or face the penalties defined by Uncle Sam.
In the second of two videos, Peter Ku, Director of Financial Services Solutions Marketing, Informatica, talks about the latest trends regarding counterparty data and how the legal entity identifier (LEI) system will impact banks across the globe.
Specifically, he answers the following questions:
– What are the latest trends regarding counterparty information and how will the legal entity identifier system impact banks across the globe?
– How does Informatica help solve the challenges regarding counterparty information and help banks prepare for the new legal entity identifier system?
Also watch Peter’s first video (http://youtu.be/KvyDPzOTnUY) to learn about counterparty data and its challenges.
In the first of two videos, Peter Ku, Director of Financial Services Solutions Marketing, Informatica, talks about counterparty data and its challenges.
Specifically, he answers the following questions:
– What is counterparty data and why is it important?
– What are some of the challenges that the global banking industry is facing with their counterparty information?
There has been much discussion, particularly in the UK, about banks restricting the use of their investment and retail arms. The thinking process behind this is that investment banking is much riskier and so by drawing a clear line between the two, consumers will be better protected if another financial crisis should hit. (more…)
By Nancy Atkinson, Senior Analyst, Aite Group
Karen Hsu of Informatica organized a TweetJam (#INFAtj) recently on business-to-business (B2B) payments, SEPA, and integration. In conversation with Chris Skinner of Balatro Ltd., I stayed (mostly) within the 140-character message limitations of Twitter while the hour flew by. (more…)
I just returned from Informatica World 2010 and wanted to share the numerous stories and experiences from some of our banking and capital markets customers using Informatica beyond Extract/Transform/Load (E.T.L) and beyond data warehousing. More importantly, how Informatica is helping these companies combat fraud, manage risk and compliance, accelerate M&A integrations, attract and retain customers, and improve operational efficiencies. Take a look at what I learned! (more…)
One of the most critical first steps for financial services firms looking to implement multidomain master data management (MDM) is to quantify the cost savings they could achieve.
Unfortunately, a thorough analysis of potential ROI is also one of the steps least followed (a key culprit being disconnects between business and IT).
This shortcoming is spotlighted in a new Informatica white paper, “Five Steps to Managing Reference Data More Effectively in Investment Banking,” which outlines key questions to ask in sizing up the cost implications of bad data and antiquated systems, such as:
- How long does it take to introduce a new security to trade?
- How many settlements need to be fixed manually?
- How many redundant data feeds does your firm have to manage?
- How accurate and complete are your end-of-day reports?
- Do you have the data you need to minimize risk and exposure? (more…)
Electronic Bank Account Management (eBAM) is a classic example of a win-win proposition. As the most manual, paper intensive interaction between corporate and institutional clients and banks today, the account maintenance process is inefficient, error prone and inherently slow.
Banks that invest in eBAM solutions will be able to reduce their operational costs, improve quality and responsiveness and meet an emerging demand from clients for innovative solutions that contribute to their bottom lines while also enhancing control. eBAM should be considered a fundamental component of an overall strategy to improve the client onboarding process, a response that TowerGroup sees as a critical differentiator going forward for the wholesale banking market.
Banks that take early action to roll out eBAM capabilities will be best positioned to respond to the projected rapid deployment of eBAM solutions on the part of their most valued corporate clients. eBAM is a game changer. Don’t be left out of the game.
I recently attended the 15th Annual Money Laundering conference to learn about recent trends, regulations, and challenges in combating financial fraud, money laundering, and complying with domestic and international laws including OFAC, BSA, AML, EU Directive on Money Laundering. At the end of the day, these are all inter-related to help locate and track the movement of funds for illegal purposes including terrorist financing, drug, and human trafficking. I was in a room packed with folks whose titles included Head of BSA/AML, VP of Compliance and Financial Fraud, Financial Securities Analysts, and wondered what kept them up at night. (more…)