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Outlook on CRS development in the Thai financial market
Developed by OECD under the Automatic Exchange of Information (AEOI) standard, Common Reporting Standard (CRS) requires financial institutions to enhance data collection and report of a client's tax status, assets and income streams to local authorities. Since 2017, it has taken effect in over 18 APAC jurisdictions, including Australia, China, Hong Kong, Japan and Singapore.
Thailand joined the Global Forum on Transparency and Exchange of Information for Tax Purposes in 2017 as a commitment to align its reporting standard with the globally recognized CRS. It is expected the nation will fully commence CRS by 1 January 2022 to carry out its first AEOI scheduled for 2023.
Thai financial institutions are in the process of understanding the implications of CRS on their IT infrastructure and operating procedures as well as developing best practices to gather, verify and monitor client information for ongoing analysis and reporting purposes. Thailand is navigating through similar challenges and misconceptions like the early adopters but stands to benefit from valuable lessons learned in the past few years.
Key lessons learned
Data protection and exchange limitations - Abiding domestic data protection rules and global reporting standards was one of the areas with the most confusion among the early adopters. In jurisdictions with strict cross-border data protection rules, some firms had trouble adopting CRS early on because there was no domestic law or legal basis for them to exchange clients' information based on the Standard's requirements. In Thailand's case, the AEOI Act and Personal Data Protection Act (due to come into force on 28 May) have been driving this industry dialogue in the right direction.
Data capture and quality - Some firms discovered they lacked critical CRS information late in the implementation stage. We noticed a reliance on existing US FATCA and/or AML approach to achieve CRS among some regional banks, which has been proven inadequate. A typical example was tax ID, as it was not an information data point banks would necessarily have been required to collect historically. It is important for firms to understand the specifics from a compliance perspective and ensure proper client onboarding and due diligence process are in place to capture the data.
Priorities of governments - Misconception on parity between CRS and FATCA still exists. Some firms were in doubt whether the authorities would follow through with local CRS implementation, given several jurisdictions are yet to announce FATCA timelines after signing up several years ago. However, the huge difference is the breadth of CRS's scope and the benefit to the local regulator. While FATCA focuses on customers who qualify as US persons, CRS is multinational by nature, involving more than 110 countries. The number of multilateral CRS agreements is outpacing FATCA and we notice an increasing number of Asian authorities pushing their CRS agendas first.
Immediate action steps
There is much to be done by Thai financial institutions in the upcoming 18 months to prepare for the CRS and its far-reaching implications:
- Understand the similarities and differences between CRS and FATCA. Ensure your organization is equipped with the depth of knowledge to incorporate CRS into the existing workflow and operations process.
- Engage in conversations that shape the policy agenda. Participate actively in industry working groups consist of compliance, legal and tax executives to stay informed and influence local CRS guidance rather than being reactive to the new rules.
- Conduct health checks on data and analytics tools. It takes time and investments to enhance systems capabilities to handle the breadth of data and complexity of CRS. Client onboarding and due diligence are priorities for automation. Understanding the gaps and the enhancements required well in advance will set a financial institution up well to commence a strategic compliance project.
Thai financial institutions have great potential in achieving smoother implementation of CRS. Apart from important learnings on how other Asian jurisdictions navigate the nuances, Thailand also has an increasingly digitized and automated financial market that provides a solid basis for firms to leverage automation and financial reporting technologies. What firms need to do now is identifying which solutions they require and deploy them in a timely manner to meet the nation's CRS timeline.
IHS Markit 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.
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