Commentaries and insightful analyses on the world of finance, technology and IT.

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January 27, 2015

CRS - Establishing the new world order

This blog is co-authored by Jay Chandrakant Joshi (


Introduction to CRS
By now, most non-US financial institutions have put in place a framework for FATCA implementation, and, as per the implementation schedule, are well on their way to meeting reporting requirements for the first reporting period. At the same time, a new regulation called Common Reporting Standard (CRS) looms large on the horizon.

While a group of early adopter countries have already endorsed their commitment to CRS (a joint statement can be found here), for most developed and developing nations, their participation in CRS is more a question of 'when' rather than 'if'. Countries like Australia, though not present in the group of early adopters, have already declared their intention to participate in CRS and, by 2018, most countries are expected to participate in CRS.


Common Reporting Standard, also popularly known as Global Account Tax Compliance Act (GATCA), is aimed at preventing global tax evasion. It aims to counter the beast of black money and tax evasion at a much larger scale than individual countries trying to fight their own battles. As a result, CRS promises to have a much wider appeal and bigger incentive for participation than FATCA. While FATCA focuses solely on identifying US tax residence, CRS takes a more global perspective and, as a result, the requirements become more complex.

Broadly outlined, the requirements for CRS are:

  • Identify all customers who are residents of any foreign country for tax purposes (as opposed to identifying only US customers for FATCA)
  • Obtain relevant reporting information from customers (for instance, obtaining the date of birth for all individual customers and tax identification number for each country of tax residence)
  • Report data to respective tax authorities (as opposed to just the American IRS)

Early analysis of FATCA-reportable client volumes in many financial institutions raises questions about the extent of technology investments and the choice between an automated or a manual approach. Based on minimal FATCA reporting volumes, many financial institutions have opted for a manual approach, treating FATCA as a standalone obligation without integrating it with existing processes. Many financial institutions have opted for a full-fledged automated FATCA solution that integrates completely with current on-boarding and customer contact management processes. The debate about the merits of implementing a strategic solution as opposed to a tactical solution for FATCA will likely linger on for a while.

However, for CRS, this volume is expected to shoot up drastically. A comprehensive change will be required across the board, from on-boarding processes to backend processes.


Implementing CRS
In order to build a sustainable framework for CRS, the first step should be impact assessment. A high-level analysis of citizenships or addresses of customers will provide an early indication of projected volumes of CRS customers. It will also provide an indication of the maximum number of reporting countries a customer is likely to have. This information is vital in designing customer on-boarding forms as well as back-end IT infrastructure. Although there can be any number of reporting countries for a customer, it may prove to be practically unfeasible to populate the number of reporting countries dynamically. It may thus be a good idea to fix the maximum number of reportable countries based on early data assessment in consultation with the legal department.

Once the impact assessment is done, the focus should then be on leveraging the existing FATCA and AML framework. For instance, the existing FATCA framework for the US can be extended to include other countries and the AML framework can be extended to identify 'Beneficial Owners' and 'Date of Birth'. Wherever possible, the current FATCA rules should be extended for CRS and, all the while, the focus should be on building a flexible, scalable solution so that the financial institution is well placed to tackle any such future regulation. Financial institutions can chose to train existing operations teams to handle additional responsibilities for CRS or build a separate team to handle CRS and FATCA. Such decisions can be taken after conducting impact assessment studies.

However, with increasing global focus on data reporting, the CRS implementation opportunity should definitely be used to strengthen existing data capture/reporting capabilities and upgrade legacy systems. This will place the financial institution in pole position to cater to all existing reporting obligations (like AML and CRS) and enable it to report data to multiple regulatory authorities while ensuring readiness in facing future obligations.

January 19, 2015

Banks - Don't Let Your Concerns Cloud Your Cloud Vision!

 - Anjani Kumar

Today, most banks endeavor to leverage IT for delivering bespoke, anytime, anywhere services and products underpinned by real-time analytical insights. Unsurprisingly then, at an average ~15% of total costs, banks' IT spending is the highest among all industries.

Understandably, banks are looking for impactful ways to bring down this cost.  Cloud Computing is a superlative means to achieve this goal, and can play a key role in helping banks transform their operating models. The Cloud enables secure deployment options, effective collaboration, new customer experiences, and shorter time-to-market for new launches. Cost savings and flexibility (through minimal capital investment and a pay-per-use billing model), enhanced business agility and continuity (through robust upkeep of the Cloud environment), and Green IT (by reducing both carbon footprint and energy consumption) are just some of the benefits of Cloud Computing.

It is estimated that by 2020, around 40% of the information in the digital universe will be Cloud-enabled. Further, research estimates that in about 18 months, more than 60% of banks worldwide will process high volumes of transactions over the Cloud.

Following are some of the functions that proactive banks have successfully migrated to the Cloud:

Mortgage/Lending Origination: Private / Community Cloud-based integrated collaboration lending platform -enabling customers to apply for loans and complete processes electronically

• Enhancement of customer relationships through consistent cross-channel experience
• Channel management (kiosk, ATM, online, mobile, call center) and content management using Private Cloud

Payments: Modernization and standardization of transaction processing

Micro Banking: Micro banking business execution

Analytics: Customer data integration across banking platforms for providing near real-time insights

Desktop Management: Centralized management of employees' desktops for greater remote management flexibility

•Access to bank's systems for branch employees via a secure Cloud
•Enablement of all customer engagement dimensions

Enhanced Business Services: Enablement of third-party services to extend banking ecosystem

New Service R&D: Research and development of new services


In spite of Cloud Computing's huge potential, many banks, beset with the following concerns are reluctant to leverage it:

Security: This remains a key concern. Many banks believe that the security and confidentiality of personal and commercial data is at risk in the Cloud.
Regulatory requirements: Many countries require banks to maintain their financial and customer data within the national boundaries.  Consequently, banks are concerned about the exact location of their data in the Cloud.

Operating control dilution and higher risk: Banks are concerned about an increase in operational risk, and its potential adverse impact on business and reputation should services over the Cloud be hampered.

Uncertainty over long term cost impact: Banks are concerned that a major strategic decision, such as switching to a Cloud-based model, is not easily reversed. They are also concerned about a potential lock-in with the Cloud service provider and unsure of how to bring the services back in-house later, if needed.  They are concerned of the huge cost and risk implications if IT systems need to be brought back in-house at a later point in time. They are also not certain of the long term cost implications of moving to the Cloud.

Concern over Cloud service providers: Banks are worried about a relative lack of standards for integrating Cloud service providers' services with their own servicing needs. They are also concerned that the solutions of many Cloud providers (across functional, operational, technical and commercial models) lack maturity. Many Cloud service providers lack proven credentials and a successful track record. Banks are also concerned that if the Cloud service provider suffers a major outage; it can have huge adverse implication for banks. Not even big Cloud service providers like Amazon Web Services have been totally immune to major outages.

That being said, success stories of banks' migration to the Cloud abound. Here are just two examples. Bankinter, the 6th largest bank in Spain, has crashed the time taken for credit risk simulation from 23 hours to just 20 minutes using the Amazon Cloud.  Commonwealth Bank of Australia cut its costs by half by moving its storage to the Cloud, and also achieved huge cost savings in app development and testing.
So what should banks, unsure of how to go about Cloud migration do, to reap immense business benefits? My next blog will provide actionable recommendations. Stay tuned...