FATCA and CRS Compliance Audits in the UAE

FATCA and CRS Compliance in the UAE 

The implementation of the FATCA (Foreign Account Tax Compliance Act) and the CRS (Common Reporting Standard) has significantly impacted financial institutions globally. Designed to enhance tax transparency and cooperation among authorities, these frameworks mandate stringent due diligence and reporting obligations. The UAE, as part of its commitment to global tax transparency, complies with both FATCA and CRS regulations. 

In the UAE, the Ministry of Finance is the authority responsible for issuing the FATCA and CRS legislation and guidance. They are also responsible for collecting account data and reporting the information to foreign authorities. However, the MoF has delegated supervision authority to 5 regulators:  the Central Bank, Securities and Commodities Authority (SCA), Abu Dhabi Global Market (ADGM), Dubai International Financial Center (DIFC) and the Federal Tax Authority (FTA). Each regulator is responsible for supervising their entities. 

• How audits are performed 

• Challenges FIs have faced with audit experiences 

• Common errors identified in FATCA and CRS audits 

• Best practices to avoid audit failures 

• How can automated compliance processes mitigate audit risks? 

How are FATCA and CRS audits performed in the UAE? 

The local FATCA and CRS reporting deadline in the UAE is 30 June annually. In addition to the XML reports for jurisdictional reporting, UAE FIs are also required to annually file a self-compliance questionnaire. Additionally, typically during September – October, the 5 regulators select Reporting FIs and carry out strict audits. 

These audits involve Reporting FIs completing detailed questionnaires and providing certain information/documentation such as their FATCA and CRS policies and procedure manuals, as well as samples of the customer completed FATCA and CRS onboarding self-certifications.  

Depending on the regulator, these audits may be conducted onsite at the RFIs premises or performed online or over email (although not all regulators do these). 

Off-site Audits and On-site FATCA and CRS Audits 

In recent years both off-site (desk reviews) and on-site audits have been performed globally. Off-site audits involve FI’s providing a copy of their FATCA and CRS policies and procedures, which are then examined by the tax authority. 

Onsite audits typically include the examination of the FI’s written policies and procedures, data in the books and records, reviewing missing self-certifications, and conducting sample testing. 

Challenges of FATCA and CRS Audits 

The main challenges observed include: 

• The audit period for completing the questionnaire and providing the requested information is limited, requiring prompt attention from a busy operations team. 

• The regulators are very heavily focusing on reviewing actual client FATCA and CRS self-certifications. This means firms that do not have documented procedures, or a digital repository have a challenging time providing valid forms to auditors. 

• Auditors are looking to check if the self-certification forms are validated and how FIs are conducting these validations/verifying accuracy (e.g. in terms of tax residency for individuals and classifications for entities) 

• More attention is being paid to reportable accounts, and that extra diligence steps are performed for certain data elements, i.e. are TINs provided and have these TINs been verified they are in line with the formats/structures as provided in the OECD website.  

Common Errors in FATCA and CRS Compliance Identified in Audits: 

Failure to Obtain Proper Self-Certifications: 

• Failing to collect or update self-certification forms for individuals and entities can lead to misclassification and erroneous reporting. 

• Consequential number of accounts that are missing taxpayer identification numbers (TINs) 

• The account holder’s (or in the case of entity accounts, the controlling person’s) date of birth is missing or inaccurately recorded 

Incorrect Classification of Accounts: 

• Misclassifying an entity or account as non-reportable can result in significant compliance breaches. 

Non-Reporting or Late Reporting: 

• Atypical year-over-year changes (such as a larger number of reportable accounts for a particular year when compared to the FI’s returns from prior years) 

• Missing reporting deadlines or providing incomplete reports can lead to penalties from the Ministry of Finance. 

Inconsistent Due Diligence: 

• Failing to conduct consistent due diligence on both pre-existing and new accounts, especially for high-value accounts, is a common error that can attract fines. 

Lack of Proper Record Keeping: 

• Failure to keep accurate and up-to-date records of due diligence and self-certifications is a key issue identified in compliance reviews. 

• Failure to update or validate account holders' tax residency status. 

• Inaccuracies in data reported to the Ministry of Finance (e.g., incorrect account balances, missing taxpayer identification numbers). 

• Delays in submitting FATCA and CRS reports. 

• Misclassification of non-reportable accounts, leading to incorrect reporting. 

Best Practices for FATCA and CRS Compliance to Avoid Audit Failures 

Establish a Compliance Framework: 

• Implement a comprehensive FATCA and CRS policy within the organization that includes clear procedures for due diligence, self-certification, and reporting. Timely Updates: Ensuring that clients' tax residency information is updated regularly, and the required documentation is maintained. 

Regular Review and Monitoring: 

• Perform regular audits of the compliance process, ensuring that any gaps are addressed promptly. A proactive approach helps reduce the risk of non-compliance. Regular Internal Audits: Conducting self-audits or engaging external consultants to review FATCA and CRS compliance processes. 

Automation and Technology: 

• Use technology to streamline the identification and reporting processes. Automated systems can help reduce human error and ensure timely submission of reports. Robust IT Systems: Implement advanced IT systems that can handle the accurate classification of accounts, manage self-certification forms, and track changes in account status. 

Employee Training: 

• Continuously train staff involved in the compliance process to ensure they are aware of the latest updates and are proficient in performing due diligence. Regular Staff Training: Ensure that staff handling FATCA and CRS compliance are regularly trained on the latest regulatory requirements.

How can Automation help? 

The feedback TAINA has heard highlights the difficulty financial institutions face in complying with CRS and FATCA regulations in the UAE. 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, UAE financial institutions can enhance their compliance procedures and mitigate risks. 

TAINA is the market-leading, fully automated FATCA and CRS Validation Platform that is revolutionizing the way that financial institutions manage compliance. TAINA’s automated platform is being used at scale by the world’s largest and most sophisticated financial institutions to revolutionize their customers’ experience and compliance.   

TAINA’s flexible and lightweight platform validates tax forms saving our clients costs and time, reducing their risk, and radically improving their customer and investor experience.  

Additionally, the TAINA platform can help manage the differences in requirements by country/jurisdiction. Although CRS represents a standard or general framework for reporting, the jurisdictions can still amend and enhance the requirements for 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.