AEOI compliance for Fund Administrators, Transfer Agents and Trustees

Tax authorities in 49 jurisdictions have the initial Common Reporting Standard (CRS) reporting files from financial institutions (FIs) in early adopter jurisdictions and are now analysing this information, following up with FIs, and pursuing those who may not be fully compliant. In addition, FIs in the 53 jurisdictions which went live for CRS in 2017 will be conducting their first CRS reporting in 2018 and experiencing the challenges that many financial institutions faced in the 2017 reporting cycle.

Many investment funds caught in the cross-hairs of Automatic Exchange of Information (AEOI) regulations have delegated responsibilities for compliance to their Fund Administrator, Transfer Agent or Trustee(s). This brings these asset servicing organizations into the spotlight for delivering AEOI compliance to many investment funds.

How did we get to here?

Worldwide efforts to combat offshore tax evasion via global information sharing regimes have been spearheaded by the OECD, United States (US) and the G20. The introduction of the US Foreign Account Tax Compliance Act (FATCA) regime in 2014 provided a global platform for financial institutions collecting, validating and reporting information. Taking the core principals of FATCA, the Organization of Economic Cooperation & Development (OECD) released the CRS which went live in 2016 and impacts financial institutions in over 100 jurisdictions. Many investment vehicles (such as regulated and unregulated funds as well as trusts) in major fund domiciles fall into the scope of both FATCA and CRS, meaning that they are required to perform due diligence and potentially reporting on their investor base to their local tax authority and/or the US.

How are Fund Administrators, Transfer Agents and Trustees impacted?

The popular operating model for investment vehicles is to delegate responsibilities for AEOI due diligence and reporting to their asset servicing provider. Typically such a provider holds the fund’s investor register and performs required AML and KYC, thus positioning it well to perform AEOI services. Although these activities are delegated by the investment fund to the asset service provider on an outsourced basis, the fund is ultimately accountable for compliance with the regulations. Fund Administrators, Transfer Agents and Trustees therefore have the following considerations:

• Compliance: potentially adhering to the standards of multiple jurisdictions
• Client management: as most providers have a large client base, finding a service model that caters for the possibility of individual client requirements yet meets the demands of multiple clients
• Service: offering a service that is commercially feasible for the provider

Challenges specific for 2018

2018 will pose a number of significant additional challenges as additional jurisdictions will complete their initial CRS reporting while early adopter FIs are seeing first rounds of feedback from government regulators. Other challenges include:

• Increasing number of participating jurisdictions: 53 additional jurisdictions will exchange their initial CRS annual reporting in 2018. This includes fund hubs such as Switzerland, Hong Kong, Singapore, Bahamas and Mauritius. These additional jurisdictions also trigger increased reporting for FIs in early adopter jurisdictions.
• Reportable information: 2017 reporting due in 2018 will include all reportable pre-existing accounts for FIs in early adopter jurisdictions. For many investment vehicles, this will exponentially increase the numbers of reportable accounts.
• Prospect of audits: With tax authorities now in possession of information from CRS information exchanges, some key fund domiciles are planning audits on selected FIs. Asset servicing organizations will need to consider how they can help their clients demonstrate
• Late and missing guidance: a number of jurisdictions have not yet released final CRS guidance which may force asset servicing organizations to make critical assumptions in order to be able to meet compliance deadlines.
• Refining the AEOI service: many asset servicing organizations are using “manual” solutions for AEOI reporting. Given exponential increases in the volume of reportable accounts, organizations relying on manual solutions may struggle to cope. Many organizations are therefore enhancing their operating model and service offering in 2018 to ensure compliance and improve the commercial viability of their offering to funds. This includes considering whether outsourcing may be a more viable solution, as this could take away much of the onus of maintaining AEOI operations (e.g. monitoring and implementing changes as a result of regulatory changes) as well as providing the asset servicing organization with a variable cost base that they can pass on to their clients. Those looking to retain control of their AEOI operating model will look at enhancing technology to support ongoing regulatory changes.

IHS Markit AEOI service offerings

CTI Tax Solutions by IHS Markit services over 350 clients in more than 60 jurisdictions. Tax Solutions offerings include due diligence and reporting, technology deployment to managed service offerings and advisory support position Fund Administrators, Transfer Agents, and Trustees for compliance with AEOI regimes.

For further information, please contact:

North and South America
William Sheridan
Executive Director
+1 617-963-3494

Asia Pacific
Michael Muncaster
Executive Director
+65 69224279

Europe, Middle East and Africa
Christopher Craddock
Director
+44 207 064 6330

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.