The Common Reporting Standard (CRS) has significantly impacted financial institutions (FIs) globally, aiming to enhance tax transparency and cooperation among jurisdictions. Taiwan’s Ministry of Finance, in a report issued in May 2024, highlighted several ongoing deficiencies in Taiwanese financial institutions’ adherence to these requirements.
Taina, a fully automated FATCA and CRS validation platform, has explored how Taiwan-based financial institutions cane enhance their compliance.
Identified Deficiencies in Taiwanese Financial Institutions
The Ministry of Finance conducted inspections for 2023 reporting, revealing that many FIs continue to struggle with CRS due diligence and reporting compliance. Key deficiencies identified include gaps in internal management, due diligence shortcomings, and reporting errors.
Internal Management Gaps
Many institutions failed to establish detailed internal compliance procedures specific to CRS, relying instead on existing anti-money laundering or FATCA procedures. Additionally, a lack of coordination and communication between departments contributed to inconsistencies in compliance. Some institutions’ procedures lacked crucial elements, such as handling “excluded accounts” or retaining records for the required period. FIs outsourcing CRS reporting to third-party vendors often lacked internal review mechanisms to ensure data accuracy.
Due Diligence Shortcomings
FIs offered self-certification forms in either Chinese or English, causing customers to misunderstand the form’s contents. Institutions often failed to verify the accuracy of customer self-certifications, particularly the reasonableness of tax identification numbers (TINs) and the identification of passive NFE versus active NFE. Misidentification of reportable accounts was common due to inadequate processes or misunderstandings of the criteria. Many institutions had insufficient documentation practices, leading to incomplete records of due diligence procedures.
Reporting Errors
Institutions struggled with producing reporting files in the required XML format, leading to errors and omissions. Some institutions failed to submit reports by the required deadlines, risking penalties and non-compliance. These deficiencies can result in significant consequences, including financial penalties, reputational damage, and increased scrutiny from regulatory bodies, Taina said. FIs must address these gaps promptly to ensure compliance and maintain their standing in the global financial ecosystem.
According to Article 53-1 of the Taiwanese CRS regulations, financial institutions that evade, obstruct, or refuse inspection or inquiries by tax authorities, fail to provide information as requested, or do not comply with due diligence and reporting obligations shall be punished according to Article 46-1 of the Tax Collection Act. The Ministry regularly publishes significant institutional or common inspection deficiencies on its website, recommending that reporting financial institutions review their operational procedures and establish control mechanisms to avoid penalties for non-compliance.
Best Practice Solutions and How Technology Can Help
Technology provides sophisticated solutions that streamline and enhance CRS compliance processes for financial institutions. By leveraging cutting-edge technology, FIs can address the critical deficiencies identified in the recent report.
Automated due diligence can enhance self-certification verification, ensuring TINs and other critical data points are accurately captured and validated against global standards. Real-time data validation can provide real-time correction of customer information, reducing the risk of errors and omissions.
Comprehensive reporting solutions ensure that all reporting files are produced in the correct format as specified by jurisdiction’s CRS guidelines, minimizing submission errors. Automated workflows help institutions meet reporting deadlines efficiently, avoiding risks associated with delayed submissions.
Robust internal controls, such as integrated review mechanisms, allow institutions to verify the accuracy and completeness of data before submission. Built-in audit trails and compliance checks ensure thorough documentation and adherence to all CRS requirements.
A user-friendly interface streamlines the due diligence and reporting processes, making it easier for staff to navigate and complete tasks accurately. Comprehensive training and support of FI staff ensure understanding of CRS regulations and how systems can support each other.
How TAINA Can Help
The deficiencies highlighted in the 2023 report by Taiwan’s Ministry of Finance underscore the challenges Taiwanese financial institutions face in complying with CRS regulations. However, with the right tools and technologies, these challenges can be effectively addressed. TAINA Technology offers a robust solution that automates and streamlines due diligence processes, ensuring compliance, accuracy, and efficiency. By adopting TAINA’s innovative solutions, Taiwanese financial institutions can enhance their compliance procedures and mitigate risks.
TAINA is the market-leading, fully automated FATCA and CRS Validation Platform that is revolutionising how financial institutions manage compliance. TAINA’s automated platform is being used at scale by the world’s largest and most sophisticated financial institutions to revolutionise their customers’ experience and compliance.
TAINA’s flexible and lightweight platform validates tax forms, including CRS Self-Certifications in all formats, saving clients costs and time, reducing their risk, and radically improving their customer and investor experience. The TAINA platform can help manage the differences in requirements by country/jurisdiction. Although CRS represents a standard or general framework for reporting, jurisdictions can still amend and enhance the requirements for reporting.
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