Regulatory reporting frameworks, common mistakes and solutions
Regulatory reporting plays a pivotal role in the finance industry and provides transparency, efficacy and integrity across different markets and their stakeholders. This article provides an in-depth look at the regulatory reporting process, its requirements and frameworks and how to avoid common mistakes to improve the regulatory reporting process.
What is regulatory reporting
During the financial regulatory reporting process, financial institutions such as banks and investment companies document, examine and submit data to their local tax authority to meet compliance laws and regulations. The data that gets submitted provides governing bodies and institutions with accurate information on stakeholder activities, improving transparency and accountability across different reporting jurisdictions.
Why regulatory reporting is important for businesses and institutions
The regulatory reporting process is the foundation for effective market co-operation and governance. Below are some of the most impactful benefits the regulatory reporting process has on financial businesses, institutions and markets.
Contributes to market stability
Regulatory reporting standards maintain trust in financial markets and provide stakeholders with transparency, which increases confidence to operate in a certain market. Complying with a standard of laws and regulations across an entire industry keeps a market stable and reliable.
Reassures integrity to all stakeholders involved
When an error occurs, it is important for financial institutions to get to the heart of the problem as quickly as possible to maintain their stakeholder’s trust. The regulatory reporting process requires banks and investment firms to manage their data efficiently. By having data lineage available, various paths can be traced back should this be required. With data lineage, banks can maintain their integrity and provide their stakeholders with trust.
Enhances safety and avoids non-compliance with laws
Regulators monitor activities and auditors examine financial data from financial institutions to enhance safety across the market and to ensure financial institutions adhere to industry regulations. Non-compliance can cause banks and other institutions to be fined or even suspended from the market they are active in. By improving the regulatory reporting process, financial institutions make their data more widely accessible and tracable, which in turn speeds up the examination process of financial data when this is required. This demonstrates an organisation’s commitment to compliance and its ability to mitigate potential risks effectively.
Helps identify new opportunities for financial improvement
Businesses and organisations must comply with industry rules and regulations to stay compliant, but the regulatory reporting process also provides businesses with new insights. The data financial institutions manage for the regulatory reporting process can also be used to make informed and strategic business decisions. By managing the data in an efficient way, opportunities can be spotted, and potential risks can be identified as early as possible.
What are regulatory reporting requirements
There are various financial regulatory reporting frameworks for different jurisdictions across the world. They require similar information to be reported on, but there can be many reporting differences across the frameworks. The required fields for the frameworks can change annually so it is crucial financial institutions are aware of specific requirements and changes across different reporting frameworks. Common necessary fields for regulatory reporting requirements are the tax identification number, country of residence, country of tax residence, account number, account holder type and the account’s ISO number.
Examples of different reporting frameworks
Below is a list of examples of financial reporting frameworks that cover various jurisdictions to ensure a stable and transparent financial market worldwide.
FATCA reporting
The Foreign Account Tax Compliance Act (FATCA) is a reporting framework for the United States. Under FATCA, foreign financial institutions (FFIs) are required to report information about accounts held by U.S. taxpayers. FATCA requires banks outside the U.S. (and other financial institutions) to document and report on accounts owned by U.S. taxpayers. This also applies to companies outside the U.S. which are mainly owned by U.S. taxpayers. The Foreign Account Tax Compliance Act aims to provide transparency across different countries and jurisdictions, so the U.S. is aware of any assets kept in foreign banks by U.S. taxpayers.
CRS reporting
The Common Reporting Standard is a similar reporting standard implemented by the Organisation for Economic Co-operation and Development (OECD). It focuses on tax compliance and sharing financial information. The Common Reporting Standard is adopted by over 100 countries worldwide. Financial institutions are required to document and report their client’s information like the tax identification number (TIN) and account information and report this information to their local tax authority.
IFRS reporting
International Financial Reporting Standards (IFRS) is a framework that standardises financial reporting practices for organisations. The standards are developed by the International Accounting Standards Board (IASB). By standardising financial processes, stakeholders and regulators can compare data between different organisations and improve their decision-making. IFRS reporting has a different focus from FATCA and CRS. Both FATCA and CRS focus on tax reporting and sharing financial information whereas IFRS focuses on standardising accounting practices.
AIFMD reporting
Alternative Investment Fund Managers Directive (AIFMD) is a regulatory framework created by the EU. This framework governs how alternative funds are managed. Investment managers are required to follow the same framework across all EU countries. The framework protects investors by increasing transparency which in turn makes the market more stable.
CBC reporting
Country by Country reporting is a financial reporting requirement that requires multinational countries to provide financial information across the different countries they are active in. CBC reporting provides local authorities with a global view of a company’s operations.
Top 3 Common made errors for FATCA and CRS
Below are three common mistakes for CRS and FATCA submissions and support on how to prevent these errors for the upcoming reporting deadline.
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Including Dummy Tax Identification Numbers (TINs) in reports
According to the Jersey Government, accounts continue to be reported using dummy TINs. Financial institutions are required to express efforts to acquire a TIN and must have mechanisms in place to detect changes in their data. -
Encountering validation errors
Many reporting FIs come across validation errors upon submission. This issue can be prevented by increasing the number of checks of formats and spelling, or by using software that provides validation warnings and errors automatically. -
Submitting corrections last-minute, risking compliance penalties
Waiting until October for the portal to re-open can lead to costly penalties. It is important for financial institutions to submit their corrections as soon as possible. ReportGenie’s FATCA and CRS software simplifies this process by providing a quick no-code correction process.
More information can be found in this paper, published by the Jersey Government in 2024.
Regulatory reporting solutions for guaranteed schema compliance
ReportGenie is a trusted software solution that simplifies the regulatory reporting process in 4 easy steps. The software automatically carries out data validation, generates final submission files in one click and supports code-free corrections. Schedule a demo or get in touch for more information about ReportGenie.