Controlling Person - Onboarding and Reporting Obligations

Controlling Persons' Onboarding and Reporting Obligations

The identification and reporting of controlling persons are essential for compliance with international tax laws and regulations. This article explores the concept of controlling persons and the importance of documenting all controlling persons. We will also examine the operational pain of maintaining records, the challenges associated with storing and validating information, and the penalties for missed reporting.

Definition of Controlling Person

A controlling person is a natural person who exercises control over a Passive Non-Financial Entity (NFE) through ownership or other means. This control can be direct or indirect, and identifying these individuals is crucial for compliance with international tax regulations. Controlling persons can include shareholders, directors, or any individual with significant influence over the entity's operations.

The obligation to report controlling persons of account holders are governed by the Common Reporting Standard (CRS) and each jurisdictions application of those rules. Developed by the Organization for Economic Co-operation and Development (OECD), CRS is a global standard for the automatic exchange of financial account information between jurisdictions. It requires financial institutions to report information about account holders, including controlling persons, to their local tax authorities. This information is then shared with other jurisdictions identified by the taxpayers.

Importance of Documenting All Controlling Persons

Documenting all controlling persons of an account is essential for several reasons:

• Compliance: Accurate documentation of controlling persons helps financial institutions and entities comply with CRS requirements, thereby avoiding penalties and legal consequences.

• Transparency: Documenting controlling persons provides a clear picture of who holds significant influence over entities, reducing the risk of illicit activities. Promoting transparency in financial transactions and ownership structures is essential for maintaining the integrity of the global financial system.

• Risk Management: By documenting controlling persons, entities can better assess and manage risks, contributing to a safer financial environment. Identifying and mitigating risks associated with money laundering and terrorist financing is a critical aspect of financial regulation.

Operational Pain of Maintaining Records

Managing and maintaining records requires significant resources, including personnel, technology, and time. Financial institutions must allocate adequate resources to ensure compliance and efficient record-keeping. Even if all controlling persons are identified during the KYC and AML process of onboarding for a new account, ensuring that a self-certification form for all controlling persons is provided can be tricky and difficult to maintain.

Even when finding a way to accurately collect and maintain these records, creating a reportable file is quite tricky. Integrating reporting systems with existing IT infrastructure can be challenging. Financial institutions must ensure that their systems are capable of handling the complexities of reporting obligations and data management or have a consistent connection with a vendor to meet their requirements.

Challenges in Storing Data and Validating Information

As we delve deeper into the operational aspects, it becomes evident that storing data and validating information about controlling persons present significant challenges. The process of storing data and validating information about controlling persons presents several challenges:

• Data Volume: The sheer volume of data that needs to be collected and stored securely can be overwhelming. Financial institutions must implement robust data management systems to handle this information efficiently.

  • For accounts with controlling persons, the FI must store data for the entity as well as the controlling persons. Therefore some accounts can have dozens of documents attributed to their certification and must be stored for the customer life cycle.

• Accuracy: Ensuring the accuracy and completeness of the information collected is crucial. Not all systems store data for controlling persons, so leveraging excels or pdf documents can make accurate reporting of data tricky.

• Verification: Verifying the authenticity of the data provided by controlling persons can be difficult. Financial institutions must employ stringent verification processes to ensure the reliability of the information.

Understanding these challenges is crucial, as failure to report accurate information of controlling persons tied to a reportable entity’s account can result in severe consequences.

Penalties for Missed Reporting of Controlling Persons

Failure to report controlling persons can result in severe consequences:

• Financial Penalties: Non-compliance with CRS can lead to significant fines and penalties. These financial repercussions can be substantial.
• Legal Consequences: Possible legal actions and sanctions may be imposed on entities that fail to report controlling persons. These legal ramifications can include lawsuits, regulatory investigations, and other punitive measures.

How TAINA Can Help

TAINA offers a comprehensive solution to the challenges of identifying and reporting controlling persons. By leveraging advanced technology, TAINA automates the collection and validation, while supporting the reporting processes, ensuring compliance with our clients' CRS obligations. TAINA's platform integrates seamlessly with existing IT infrastructure, reducing the operational burden on financial institutions. It provides robust data management systems to handle large volumes of information securely and accurately.

Additionally, TAINA's stringent verification processes enhance the reliability of the data collected, mitigating risks associated with non-compliance. With TAINA, financial institutions can streamline their operations, maintain accurate records, and avoid the severe penalties associated with missed reporting.

We would love to talk to you more about your current documentation validation process and how our award-winning FATCA and CRS Validation platform may add value to your organisation.

For more information on how our fully automated FATCA and CRS Validation platform can add value to your business, get in touch or request a demo to see it in action.