View
282
Download
0
Category
Preview:
Citation preview
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
AEoI after FATCA: just copy&paste? 2
About meEducation
• French-speaking Swiss.• In the Greater Zurich Area for 30 years.• Education:
InformationTechnology
Finance
(Project-)Management
A presentation, based on the combination of IT, Finance and Project-Management.
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 3
About meProfessional Experience
• Professional Experience:
• Currently:o Board member, VP Operations at Project Management Institute (Switzerland)o Interim Project Leader & Business Analyst «Bank Regulatory»
Ser
ge G
araz
i, 30
Nov
201
5
ABN Amro
T-SystemsDeutsche Telekom
Rothschild Bank
Detecon Consulting
AMSComit
UBSCredit SuisseJulius BaerBNP Paribas
Project Management
Institute
AEoI after FATCA: just copy&paste? 4
About meProject 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)
BusinessRepresentatives
Project Leader
Business Analyst(s)
IT Team(Programmers, Testers, Infrastructure, Rollout…)
Business Project
Or
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 5
Welcome on board!
1. Review of the financial crisis2. Regulatory Responses to the Crisis3. FATCA & AEoI
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 6
1. Short Review of the Financial Crisis 20081.1 The Housing Bubble
1990s
2000s
Subprime
Loans
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 7
1. Short Review of the Financial Crisis 20081.2 The Fall
2006
2008
XSer
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 8
1. Short Review of the Financial Crisis 20081.3 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
Ser
ge G
araz
i, 30
Nov
201
5
Deregulation
AEoI after FATCA: just copy&paste? 9
1. Short Review of the Financial Crisis 20081.4 About Deregulation
2008
“Financial Tsunami”
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 10
2. Regulatory Responses
2.1 Towards Transparency with OTC Derivatives2.2 Towards Client Protection & Market Efficiency2.3 Towards Bank Resilience
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 11
2. Regulatory Responses2.1 Towards Transparency in OTC Derivatives
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 12
2. Regulatory Responses2.1 Towards Transparency in OTC Derivatives
Warren Buffet“derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” (2003)
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 13
2. Regulatory Responses2.1 Towards Transparency in OTC Derivatives
• Situation:o OTC (over-the-counter) Derivatives were not regulated
• Problems:o No Transparencyo Excessive risk-taking
• Solutions (G-20):o Trade standardized OTC Derivatives on exchangeso Clear OTC Derivatives centrallyo 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)
USD180bn !
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 14
2. Regulatory Responses2.1 Towards Transparency in OTC Derivatives
2010 2011 2012 2014 20152013 2016 2017 2018
21.07Dodd-Frank
Is active
today
Etc.
16.08EMIR
Is active
20.08FMIA
consultationstarts
01.01FMIA
is active
02.07MiFID2
published
03.03MiFID2to beactive
04.11MiFID2
EU considersdelay
?
AEoI after FATCA: just copy&paste? 15
2. Regulatory Responses2.1 Towards Transparency in OTC Derivatives
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!
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 16
2. Regulatory Responses2.2 Towards Client Protection & Market Efficiency
• Problems:o Loans were given to persons who could not afford themo Conflict of interest between banks’ interests & their Clients’ interestso 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 serviceso Suitability and appropriateness tests
• Involved regulations:o USA: Dodd-Frank Acto EU: MiFID2o CH:
- Financial Institution Act FinIA (DE: FINIG, FR: LEFIN) - Federal Financial Services Act FFSA (DE: FIDLEG, FR: LSFIN)
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 17
2. Regulatory Responses2.2 Towards Client Protection & Market Efficiency
2010 2011 2012 2014 20152013 2016 2017 2018
21.07Dodd-Frank
Is active
today
Etc.
04.11FinSA/FinIA
Draftspublished
01.01FinSA/FinIAare active
02.07MiFID2
published
03.01MiFID2to beactive
02.07MiFID2
EU considersdelay
?
?
AEoI after FATCA: just copy&paste? 18
2. Regulatory Responses2.3 Towards Bank Resilience
• Problems:o Capital cushion was depleted by moving items off-balance sheeto Liquidity was insufficiently taken care ofo Banks grew so large that they threatened existence of states
• Solutions:o Increase of required capitalo Liquidity requirementso Too big to fail
• Involved regulations: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)S
erge
Gar
azi,
30 N
ov 2
015
AEoI after FATCA: just copy&paste? 19
2. Regulatory Responses2.3 Towards Bank Resilience
2010 2011 2012 2014 20152013 2016 2017 2018
21.07Dodd-Frank
Is active
today
Etc.
17.07CRD IVis active
2013 - 2019Basel III requirements are gradually phased in
01.01BRRD
is active
World
22.12TBTF
In consultation
30.09TBTF
legislationis passed
01.03TBTF
legislationis active
AEoI after FATCA: just copy&paste? 20
2. Regulatory Responses2.4 Towards international Tax Compliance
Problem
Solution
Consequence SwissBankingSecrecy
(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. S
erge
Gar
azi,
30 N
ov 2
015
AEoI after FATCA: just copy&paste? 21
3. FATCA and AEoI3.1 Overview
• Information Exchange:o Between countries, it‘s Exchange of Informationo 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
AEoI after FATCA: just copy&paste? 22
3. FATCA and AEoI3.2 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/Corporations/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.S
erge
Gar
azi,
30 N
ov 2
015
AEoI after FATCA: just copy&paste? 23
3. FATCA & AEoI3.2 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
Cost: USD20bn worldwide
(source: Wikipedia)
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 24
3. FATCA & AEoI3.2 FATCA
2010 2011 2012 2014 20152013 2016 2017 2018
18.03SignedInto law
01.07Go-live
31.03Reporting
today
30.09Reporting
Increasing scope of reported information:• 2015: Account Holder name, Account, balance• 2016: in addition: Income• 2017: in addition: Gross proceeds
17.01Final
Regulationsare 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).
31.03Reporting
30.09Reporting
31.03Reporting
30.09Reporting
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 25
3. FATCA & AEoI3.3 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 Agreemento 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/Transparency/automaticexchangeofinformation.htm
AEoI after FATCA: just copy&paste? 26
3. FATCA & AEoI3.3 AEoI
• Data transfer similar to IGA1 of FATCA, but to every concerned country
Tax AuthorityOf own country
Tax Authorityof other country(Bundeszentralamt für
Steuern)
With Clientswho are tax-residentin
Tax Authorityof other country
(Ministère des Finances)
Tax Authorityof 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 Clientswho are tax-residentin …
Ser
ge G
araz
i, 30
Nov
201
5
With Clientswho are tax-residentin
AEoI after FATCA: just copy&paste? 27
3. FATCA & AEoI3.3 AEoI
2010 2011 2012 2014 20152013 2016 2017 2018
21.07StandardReleasedby OECD
today
01.01Start
01.01Start
30.09Reporting
19.04G-20
endorsesexpected Standard
Early Adopter countries
“Regular” countries
30.09Reporting
30.09Reporting
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)
AEoI after FATCA: just copy&paste? 28
3. FATCA & AEoI3.3 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)
Cost: CHF300m-600m for S
witzerland
(source: Swissbanking.org)
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.S
erge
Gar
azi,
30 N
ov 2
015
AEoI after FATCA: just copy&paste? 29
3. FATCA & AEoI3.4 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!
But …
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 30
3. FATCA & AEoI3.4 Is AEoI just copy&paste? What are the Challenges?
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?
But …
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
AEoI after FATCA: just copy&paste? 31
3. FATCA & AEoI3.4 Is AEoI just copy&paste? What are the Challenges?
B) Further Project Management challenges (for regulatory projects): Resources
o Availabilityo Competition of resources
Organizationalo Late definition resp. Clarification of topics, o Tight deadlines
Data & Systemso Different involved systemso Complex (unclean) datao Ensure correctness of reported datao Ensure Traceability/auditability of data change
Ser
ge G
araz
i, 30
Nov
201
5
AEoI after FATCA: just copy&paste? 32
3. FATCA & AEoI3.4 Is AEoI just copy&paste? What are the Challenges?
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.S
erge
Gar
azi,
30 N
ov 2
015
AEoI after FATCA: just copy&paste? 33
First, FATCA.Now, the Automatic Exchange of Information:
- is it just copy & paste?
Serge GaraziZug, SwitzerlandInterim 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.net Web:
Recommended