The Common Reporting Standard, proposed by The Organization for Economic Cooperation and Development, is aimed at improving customer onboarding, preexisting customer due diligence and data governance and reporting. Financial institutions located in countries that adopt the CRS will have to adopt better practices for the Automatic Exchange of Information by January 2016.
“Investment firms have found it challenging complying with data governance regulations.”
The Common Reporting Standard requires action from financial institutions
The CRS framework is similar to the Foreign Account Tax Compliance Act in that it aims to promote the annual automatic exchange of financial information between organizations and governments. According to KPMG, the CRS will impose strict operational rules for investment firms, challenging them to grow and improve their data management capabilities. Clients, issuers and markets all require increasingly sophisticated systems to ensure accuracy and functionality of data sets. Many investment firms have found it challenging keeping up with new data governance regulations and some have opted to build their own data warehouses in an effort to effectively source all their required data. However, the proliferation of data regulation makes it difficult to comply with all requirements. This is an area where outsourced data management services can be highly beneficial.
A great number of firms are making the mistake of dealing with their increasing data challenges on their own, noted KPMG. Only in select markets has the industry pooled resources and responded collectively. Additionally, due to the global nature of the asset management business, investment professionals have been flummoxed by the effects of regulation on cross-border deals and the management of international clients in a more structured environment. Because data challenges are so pronounced these days, a more comprehensive approach is needed.
Mitigating operational burdens
It is likely that the CRS will impose a heavier operational burden on financial institutions than FATCA did. Coupled with the recently announced Solvency II update, having greater access and control of data will be necessary. To avoid being seen as non-compliant in terms exchange information, financial institutions will have to review their systems and processes to assess whether they will be able to handle the increased workload and guarantee accuracy.
Asset managers should consider managed data services as a solution to the rising complexity in data governance. Outsourced data management services can help firms reduce data fragmentation and improve its management for more effective use. As the industry falls under increasing regulatory scrutiny, relying on professionals whose job it is to deliver accurate and reliable data is advisable. In this way, organizations can spend less time monitoring and measuring the quality of their data and more time on value added activities. Organizations should do everything they can to facilitate data use in all business segments, before new data standards come into full effect.