Improving CRS Compliance in Taiwanese Financial Institutions

Taiwan Financial Institutions: Needs for Enhancing Compliance by Addressing CRS Due Diligence Deficiencies

Common Reporting Standard (CRS) requirements have significantly impacted financial institutions (FIs) globally. Designed to enhance tax transparency and cooperation among jurisdictions, the CRS mandates specific due diligence and reporting obligations for FIs. A recent report by Taiwan's Ministry of Finance, issued in May 2024, highlighted several ongoing deficiencies in Taiwan FIs adherence to these requirements.

Identified Deficiencies in Taiwanese Financial Institutions

The report highlights results of inspections for 2023 reporting which was conducted by Taiwan's Ministry of Finance. Their findings revealed that many FIs are still grappling with compliance issues related to CRS due diligence and reporting. Key deficiencies identified include:

Internal Management Gaps:

• Lack of Comprehensive Internal Procedures: Many institutions failed to establish detailed internal compliance procedures specific to CRS, often relying instead on existing anti-money laundering or FATCA procedures. Also, a lack of coordination and communication between departments was directly attributable to inconsistencies in compliance.

• Incomplete Internal Procedures: Some institutions' procedures lacked crucial elements, such as handling "excluded accounts" or retaining records for the required period.

• Inadequate Review Mechanisms: FIs outsourcing CRS reporting to third-party vendors often lacked internal review mechanisms to ensure data accuracy.

Due Diligence Shortcomings:

• Self-Certification Forms:

  • FIs offer only Chinese, or only English, self-certification forms causing customers to not accurately understand the contents of the form.

  • Institutions often failed to verify the accuracy of customer self-certifications, particularly;

    • reasonableness of the tax identification numbers (TINs)

    • identification of passive NFE versus active NFE

• Incorrect Account Identification: Misidentification of reportable accounts was common, due to either inadequate processes or misunderstandings of the criteria.

• Documentation Issues: Many institutions had insufficient documentation practices, leading to incomplete records of due diligence procedures.

Reporting Errors:

• Formatting and Submission Errors: Institutions struggled with producing reporting files in the required XML format, leading to errors and omissions.

• Delayed Reporting: Some institutions failed to submit reports by the required deadlines, risking penalties and non-compliance.

These deficiencies can lead to significant consequences, including financial penalties, reputational damage, and increased scrutiny from regulatory bodies. 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:

• Enhanced Self-Certification Verification: automate the verification of self-certification forms, ensuring that TINs and other critical data points are accurately captured and validated against global standards.

• Real-Time Data Validation: Technology can provide real-time validation and correction of customer information, reducing the risk of errors and omissions.

Comprehensive Reporting Solutions:

• Accurate Data Formatting: Ensure that all reporting files are produced in the correct format as specified by jurisdiction’s CRS guidelines, minimizing the risk of submission errors.

• Timely Reporting: Automated workflows help institutions meet reporting deadlines efficiently, avoiding the risks associated with delayed submissions.

Robust Internal Controls:

• Integrated Review Mechanisms: Integrated review processes that allow institutions to verify the accuracy and completeness of data before submission.

• Audit and Compliance Features: Built-in audit trails and compliance checks ensure that institutions maintain thorough documentation and adhere to all CRS requirements.

User-Friendly Interface:

• Streamlined Processes: An intuitive interface simplifies the due diligence and reporting processes, making it easier for staff to navigate and complete tasks accurately.

• Training and Support: Comprehensive training and support of FI staff will 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 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 including CRS Self-Certifications in all formats, 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.