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Qualified Intermediary (QI) Compliance program design and assessment
New QI requirementsThe new compliance requirements propose challenging issues for responsible officers (ROs). QI ROs will need to respond quickly to the mandates of the proposed QI Agreement, which is scheduled to become effective 1 January 2017. Although changes to the proposed language are possible, the thrust of the main provisions was present in the 2014 version of the QI Agreement and thus is likely to remain.
• The QI Agreement requires that ROs submit the result of a current QI’s first compliance review by 1 July 2018 (this date may vary depending upon the effective date of the QI’s Agreement). ROs must certify as to the efficacy of the QI’s internal controls — both for the QI’s obligations under the QI Agreement and its FATCA requirements — for the entire certification period (for most QIs, the first certification period is 30 June 2014 through 31 December 2017).
In order for the RO to make this certification, a QI must have established a compliance program — essentially a governance framework — that includes:
Requirement QI/RO responsibilities
Written policies and procedures The QI must have up-to-date written policies and procedures sufficient for QI to satisfy the requirements of its QI Agreement as well as its Foreign Account Tax Compliance Act (FATCA) obligations, including a process for employees to escalate issues.
Training The RO must communicate policies and procedures to all business units that are responsible for obtaining, reviewing and retaining documentation; making payments subject to withholding; or reporting payments and accounts.
Systems The RO must ensure that systems and processes are in place to allow the QI to fulfill its FATCA and QI obligations.
Monitoring of business changes The RO must monitor business practices and arrangements that affect the QI’s compliance with the QI Agreement; for example, the acquisition of a line of business.
Periodic review requirement The QI must commission a periodic review of its compliance with the QI Agreement (similar to the previous QI audit).
In addition to having a compliance program in place, a QI must have an internal or external reviewer conduct an independent periodic review (the testing of the application of the policies and processes against a sample of accounts) as well as the QI’s reporting and withholding for any one calendar year in the certification period (i.e., 2015, 2016 or 2017).
QIs may be challenged by implementing new procedures, remediating failures and adhering to new internal controls established by an RO in the short time suggested by the proposal. QIs may find performing an assessment prior to the year of the periodic review to be helpful in order to avoid any surprises, especially in light of the recent implementation of FATCA.
Americas
Bill Bailey Partner, Financial Services Organization Ernst & Young LLP
Bermuda
Tara Ferris Principal, Financial Services Organization Ernst & Young LLP
Todd Larsen Executive Director, Financial Services Organization Ernst & Young LLP
Phil Garlett Executive Director, Financial Services Organization Ernst & Young LLP
Justin O’Brien Principal, Financial Services Organization Ernst & Young LLP
John Staples Principal, Financial Services Organization Ernst & Young LLP
US
Jillian Nicolson Partner, Financial Services Organization Ernst & Young LLP
Canada
Uruguay
Alejandro Barboni Partner, Financial Services Organization Ernst & Young LLP
Israel
Raz Zontag Partner, Financial Services Organization Ernst & Young LLP
EMEIA
James Guthrie Partner, Financial Services Ernst & Young LLP
Julian Skingley Partner, Financial Services Ernst & Young LLP
UK and Channel Islands
France and Monaco
Loubna Lemaire Partner, Financial Services Organization Ernst & Young LLP
Germany
Petar Groseta Partner, Financial Services Organization Ernst & Young LLP
Luxembourg
Christian Daws Executive Director, Financial Services Organization Ernst & Young LLP
Switzerland
Patrick Fitzgerald Senior Manager, Financial Services Organization Ernst & Young LLP
Hans-Joachim Jaeger Partner, Financial Services Ernst & Young LLP
Asia-PacificHong Kong
Phil Gough Executive Director, Financial Services Organization Ernst & Young LLP
Paul Ho Partner, Financial Services Ernst & Young LLP
Junko Kamei Partner, Financial Services Ernst & Young LLP
Ichiro Suto Partner, Financial Services Ernst & Young LLP
Japan
Desmond Teo Partner, Financial Services Ernst & Young LLP
Singapore
Our core team has extensive experience with multi-jurisdictional QI audits and health checks, most notably across Asia, Europe and the UK.
How EY can helpCompliance program/governance framework design
Periodic review (internal controls) Periodic review (fact finding)
Support the development and documentation of a compliance program and infrastructure, including policies, procedures, training modules and systems, to comply with documentation, reporting, withholding and other requirements of the agreement.
We codevelop assessment criteria based on the risk profile of QI responsibilities.
We execute sample testing using a standard process that helps ensure quality and delivers results in a timely and cost-effective manner.
Establish risk and control standards organized around roles, responsibilities and reporting lines that ensure communication to eliminate gaps between the compliance program design and operational realities.
We have developed a proprietary business risk assessment methodology to evaluate the control environment and support your internal control certification. Our assessment is designed to provide early identification of material failures, control weaknesses and operational failings.
We have developed standard periodic review procedures based on Rev. Proc. 2002-55 and the objectives outlined in Section 10 of the QI Agreement to produce the factual information requested by the IRS.
Leverage predefined policies and procedures, training modules, and control and compliance frameworks that are continuously updated based on industry experience and previous assessments.
We will also deliver remediation plans for any material failures and recommend improvements for the design of your control environment, to strengthen the risk and control awareness of stakeholders.
We can develop a program and train your audit staff to conduct the periodic review.
Develop a compliance program that allows business units to conduct their activities in ways that comply with regulations and serve operational and competitive needs.
We can also assist you in developing ongoing compliance testing programs to support internal control certifications.
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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.
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Why EY?EY has long been a leading advisor and service provider for Qualified Intermediaries, with a strong global network of professionals with a variety of backgrounds in the legal requirements, tax operations, systems and controls. Our team includes former IRS counsel officials and IRS exam personnel with responsibility for the IRS QI program and guidance, as well as leaders in the QI audit community and former industry participants.
ContactsJohn Staples Principal, Financial Services Ernst & Young LLP +1 202 327 5662 [email protected]
Tara Ferris Principal, Financial Services Ernst & Young LLP +1 212 360 9597 [email protected]
Jillian Nicolson Partner, Financial Services Ernst & Young LLP +1 416 943 4474 [email protected]
Todd Larsen Executive Director, Financial Services Ernst & Young LLP +1 215 448 5000 [email protected]
James Guthrie Partner, Financial Services Ernst & Young LLP +44 20 7951 4366 [email protected]
Petar Groseta Partner, Financial Services Ernst & Young LLP +49 6196 9962 4509 [email protected]
Hans-Joachim Jaeger Partner, Financial Services Ernst & Young LLP +41 58 286 3158 [email protected]
Patrick Fitzgerald Senior Manager, Financial Services Ernst & Young LLP +41 58 286 5761 [email protected]
