First came FATCA, now comes the Automatic Exchange of Information: is it just "copy & paste"? (CFA Society Switzerland, 30 Nov 2015

Regulatory
Serge Garazi – Interim Project Leader “Bank Regulatory”
Update
First, FATCA.
Now, the Automatic Exchange of Information
- is it just copy & paste?
30 Nov 2015

2
About me
Education
• French-speaking Swiss.
• In the Greater Zurich Area for 30 years.
• Education:
Information
Technology
Finance
(Project-)
Management
A presentation, based on the combination of IT, Finance and Project-Management.
AEoI after FATCA: just copy&paste?

3
About me
Professional Experience
• Professional Experience:
• Currently:
o Board member, VP Operations at Project Management Institute (Switzerland)
o Interim Project Leader & Business Analyst «Bank Regulatory»
ABN Amro
T-SystemsDeutsche
Telekom
Rothschild
Bank
Detecon
Consulting
AMSComit
UBSCredit SuisseJulius BaerBNP Paribas
Project
Management
Institute

4
About me
Project Organization
On the Business side, Business Consultants are key to bring the information about the
regulation to the Bank Management and requirements to the Project Team.
The Project Team then implements the new regulation in the Bank.
Head Compliance /
General Counsel /
COO / …
Project Sponsor
Business
Consultant(s)
Business
Representatives
Project Leader
Business
Analyst(s)
IT Team
(Programmers, Testers,
Infrastructure, Rollout…)
Business Project
Or

5
Welcome on board!
1. Review of the financial crisis
2. Regulatory Responses to the Crisis
3. FATCA & AEoI

6
1. Short Review of the Financial Crisis 2008
1.1 The Housing Bubble
1990s
2000s
AEoI after FATCA: just copy&paste?

7
1.2 The Fall
2006
2008
XAEoI after FATCA: just copy&paste?

8
1.3 The Causes
Deregulation Poor economic policy
Moral hazard
Over-reliance on quantitative models
Excessive leverage
Availability of cheap credit
Dangerous assumptions regarding
market dynamics
Undisclosed conflicts of interest
Failure of regulators
Failure of credit rating agencies
Failure of the market
High risk, complex financial products
Lack of transparency
Failures in financial supervision
Failures of corporate governance
Inconsistent action by government
Systemic breakdown in accountability
and ethics
Deregulation of OTC Derivatives
High debt
Collapsing mortgage lending standards
Excessive risk-taking
Undisclosed conflicts of interest
Compensation schemes encouraged gambling
Deregulation

9
1.4 About Deregulation

2008
“Financial
Tsunami”

2. Regulatory Responses
2.1 Towards Transparency with OTC Derivatives
2.2 Towards Client Protection & Market Efficiency
2.3 Towards Bank Resilience
10AEoI after FATCA: just copy&paste?

11
2.1 Towards Transparency in OTC Derivatives

12
Warren Buffet
“derivatives are financial weapons of mass
destruction, carrying dangers that, while now
latent, are potentially lethal.” (2003)

13
• Situation:
o OTC (over-the-counter) Derivatives were not regulated
• Problems:
o No Transparency
o Excessive risk-taking
• Solutions (G-20):
o Trade standardized OTC Derivatives on exchanges
o Clear OTC Derivatives centrally
o Report OTC Derivatives
• Involved regulations:
o USA: Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
o EU:
 European Market Infrastructure Regulation (EMIR)
 Markets in Financial Instruments Directive 2 (MiFID2)
o CH: Financial Markets Infrastructure Act FMIA (DE: FinfraG, FR: LFIM)

14
2010 2011 2012 2014 20152013 2016 2017 2018
21.07
Dodd-Frank
Is active
today
Etc.
16.08
EMIR
Is active
20.08
FMIA
consultation
starts
01.01
FMIA
is active
02.07
MiFID2
published
03.03
MiFID2
to be
active
04.11
MiFID2
EU considers
delay
?

15
IMPORTANT: This book is a very niche
and specific piece relevant to a small
target audience of potential clients of the
Affinity business. Please consider
whether it is relevant to you before
buying it.
Despite of the seriousness of the subject, … keep having humor!

16
• Problems:
o Loans were given to persons who could not afford them
o Conflict of interest between banks’ interests & their Clients’ interests
o Banks didn’t understand the products they sold
• Solution:
o Rules of conduct for financial intermediaries (e.g. with inducements)
o Info requirements about financial institutes and their products and services
o Suitability and appropriateness tests
o USA: Dodd-Frank Act
o EU: MiFID2
o CH:
 Financial Institution Act FinIA (DE: FINIG, FR: LEFIN)
 Federal Financial Services Act FFSA (DE: FIDLEG, FR: LSFIN)

17
2010 2011 2012 2014 20152013 2016 2017 2018
21.07
Dodd-Frank
Is active
today
Etc.
04.11
FinSA/FinIA
Drafts
published
01.01
FinSA/FinIA
are active
02.07
MiFID2
published
03.01
MiFID2
to be
active
02.07
MiFID2
EU considers
delay
?
?

18
• Problems:
o Capital cushion was depleted by moving items off-balance sheet
o Liquidity was insufficiently taken care of
o Banks grew so large that they threatened existence of states
• Solutions:
o Increase of required capital
o Liquidity requirements
o Too big to fail
o USA: Dodd-Frank Act, etc.
o EU:
 Capital Requirement Directive CRD IV/CRR
 Bank Recovery & Resolution Directive (BRRD)
o World
 Basel III
o Switzerland
 Too big to Fail (TBTF)

19
2010 2011 2012 2014 20152013 2016 2017 2018
21.07
Dodd-Frank
Is active
today
Etc.
17.07
CRD IV
is active
2013 - 2019
Basel III requirements are gradually phased in
01.01
BRRD
is active
World
22.12
TBTF
In consultation
30.09
TBTF
legislation
is passed
01.03
TBTF
legislation
is active

20
2.4 Towards international Tax Compliance
Problem
Solution
Consequence Swiss
Banking
Secrecy
(For outside CH)
(UK-FATCA)
FATCA and AEoI cause the death of the Swiss Banking Secrecy, except for people
who are non-US persons and tax-resident only in Switzerland.

21
3. FATCA and AEoI
3.1 Overview
• Information Exchange:
o Between countries, it‘s Exchange of Information
o For Bank: it‘s Export of Information
• For Individual Clients and Legal Entities (incl. trusts!)
• Transferred data (yearly, automatic)
o KYC (Know-your-Client) data: name, birthdate, …
o Financial data: account balance, transactions, …
Tax Authority of
other country
Tax Authority of
own country
FATCA:
- IGA2
- Final regulations
FATCA:
- IGA1 (most countries)
AEoI
1
2

22
3. FATCA and AEoI
3.2 FATCA
• «Foreign Account Tax Compliance Act»
• US-triggered, applies to the whole world
• Obligation to Identify, Report, Withhold
• Based on «Nationality++» & Indicia
• Intergovernmental Agreements (IGA)
o IGA1 (most countries)
o IGA 2 (few countries, e.g. Switzerland)
o Final Regulations
https://www.irs.gov/Businesses/Co
rporations/Foreign-Account-Tax-
Compliance-Act-FATCA
FATCA requires that banks around the world report their American Clients to the
Internal Revenue Services, in the US.

23
3. FATCA & AEoI
3.2 FATCA
Impact for Banks
– Re-think of business model with US Clients
– Classify US Clients and report them to the Internal Revenue Service (IRS)
Impact for Clients
– Possibly have to fill up some forms to determine their status
– For US-Persons: Have their financial data reported to the IRS

24
3. FATCA & AEoI
3.2 FATCA
2010 2011 2012 2014 20152013 2016 2017 2018
18.03
Signed
Into law
01.07
Go-live
31.03
Reporting
today
30.09
Reporting
Increasing scope of reported
information:
• 2015: Account Holder name,
Account, balance
• 2016: in addition: Income
• 2017: in addition: Gross proceeds
17.01
Final
Regulations
are released
IGA 1 (most countries)
IGA 2
FATCA is characterized by a short implementation time and a gradually increasing
scope of reported information. Banks that first report to their local tax Authority (IGA1),
report at a different date than those banks that report directly to the IRS (IGA2).
31.03
Reporting
30.09
Reporting
31.03
Reporting
30.09
Reporting

25
3. FATCA & AEoI
3.3 AEoI
• “Standard for Automatic Exchange of Financial Information in Tax Matters”
• OECD-triggered, targeting the whole world, except USA
• Based on bilateral agreements, reciprocal
• Obligation to Identify & Report, Withhold
• Based on Tax Residence (& indicia)
• Made of
o Model Competent Authority Agreement
o CRS (Common Reporting Standard)
o Commentaries
• 2 main dates per booking center:
o Effective date: start of AEoI for the booking center (e.g. Switzerland: 01.01.2017)
o Agreement Activation dates: per country pair (booking Center, country X)
o In other languages:
o German: Automatischer Informationsaustausch (AIA)
o French: Echange Automatique d’Information (EAI)
http://www.oecd.org/tax/T
ransparency/automaticex
changeofinformation.htm

26
3. FATCA & AEoI
3.3 AEoI
• Data transfer similar to IGA1 of FATCA, but to every concerned country
Tax Authority
Of own country
Tax Authority
of other country
(Bundeszentralamt für
Steuern)
With Clients
who are tax-resident
in
Tax Authority
of other country
(Ministère des
Finances)
Tax Authority
of other country
Swiss Banks report their Clients that are tax-resident in a participating Jurisdiction, to
the Federal Tax Administration (FTA) in Bern. Then, the FTA transfers Client data to
the corresponding Reporting Jurisdictions.
With Clients
in …
With Clients
in

27
3. FATCA & AEoI
3.3 AEoI
2010 2011 2012 2014 20152013 2016 2017 2018
21.07
Standard
Released
by OECD
today
01.01
Start
01.01
Start
30.09
Reporting
19.04
G-20
endorses
expected
Standard
Early Adopter countries
“Regular” countries
30.09
Reporting
30.09
Reporting
AEoI, like FATCA, has a short implementation timeframe. It comes into play a few
months after FATCA became active.
Start of AEoI is divided into “Early Adopters” (2016) and the regular adopters (2017)

28
3. FATCA & AEoI
3.3 AEoI
Impact for Banks
– Re-think business model as tax-compliant advising different from tax-not-compliant
– Implementation and operational effort to deliver Client-related data to tax authorities
– Costs
Impact for Clients
– Most were not concerned by FATCA, most will be for CRS
– Be reported to every country where tax-resident
– New documents (Self-Certification, Documentary Evidence)
As for FATCA, the AEoI causes a potential re-think of the Bank’s business model.
It then creates both implementation and operational costs for the Bank, without added
benefit to either the Bank or its Clients.

29
3. FATCA & AEoI
3.4 Is AEoI just copy&paste? What are the Challenges?
A. Just copy & paste?
 Both are regulations for international tax compliance
 Both regulations require exporting Client and account information
Yes!

30
3. FATCA & AEoI
A. Just copy & paste?
More Clients for AEoI than for FATCA
 AEoI: target are all countries vs. FATCA: 1 country (USA)
 AEoI: no exemption for lower balance accounts
 Automatization/industrialization necessary!
 Centralization or de-centralization?
Higher complexity
 AEoI: Export to many different countries (vs. 1 country for FATCA)
 AEoI: Different start dates (vs. 1 start date for FATCA)
 AEoI: different basis for reporting (Tax residence, vs. Nationality for FATCA)
 AEoI: partially different concerned Financial Institutions
 Partially different due diligence
 Partially different data to report

31
3. FATCA & AEoI
B) Further Project Management challenges (for regulatory projects):
 Resources
o Availability
o Competition of resources
 Organizational
o Late definition resp. Clarification of topics,
o Tight deadlines
 Data & Systems
o Different involved systems
o Complex (unclean) data
o Ensure correctness of reported data
o Ensure Traceability/auditability of data change

32
3. FATCA & AEoI
B) Further Project Management challenges:
 Knowledge & complexity of business and system processes
 Reporting: Make or Buy?
Massively higher number of concerned accounts and higher complexity are the two
main reasons why AEoI is not just a “copy&paste” of FATCA.
Further project management challenges make AEoI even more complex to solve.

33
First, FATCA.
Now, the Automatic Exchange of Information:
- is it just copy & paste?
Serge Garazi
Zug, Switzerland
Interim Project Leader “Bank Regulatory”
“Making Change become Reality!”
https://www.xing.com/profile/Serge_Garazi
https://ch.linkedin.com/in/sergegarazi
• Review of the Financial Crisis of 2008
• Regulatory Responses to Crisis
• FATCA & AEoI: just copy&paste? Which challenges?
Thank you for flying “Regulatory Airlines”!
www.garazi.netWeb:

First came FATCA, now comes the Automatic Exchange of Information: is it just "copy & paste"? (CFA Society Switzerland, 30 Nov 2015

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (18)

Ähnlich wie First came FATCA, now comes the Automatic Exchange of Information: is it just "copy & paste"? (CFA Society Switzerland, 30 Nov 2015

Ähnlich wie First came FATCA, now comes the Automatic Exchange of Information: is it just "copy & paste"? (CFA Society Switzerland, 30 Nov 2015 (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

First came FATCA, now comes the Automatic Exchange of Information: is it just "copy & paste"? (CFA Society Switzerland, 30 Nov 2015

Hinweis der Redaktion