GATCA Compliance: Is it better to build or buy?

Fast on the heels of the U.S. Foreign Account Tax Compliance Act (FACTA), is the “global account tax compliance act,” or GATCA.

GATCA Compliance:  Is it better to build or buy?

The Organisation for Economic Cooperation and Development (OECD) released its initial version of this new regulation in July 2014, and more than 65 countries have publically committed to it.

Like its predecessor, GATCA was created in response to the growing awareness of off-shore tax evasion and to increase transparency and enhance reporting. Many countries and international financial institutions are interested in GATCA because it offers the advantage of a single, common, global standard.

Nothing about GATCA compliance will be easy. Therefore, many companies are comparing the pros and cons of building an in-house compliance solution versus purchasing one from a third-party Governance, Risk and Compliance (GRC) vendor. To help you in your decision to buy or build, we’ve listed the pros and cons of each.

The pros of buying a GATCA solution:

  • Complexity offload. Large financial institutions with offices around the world face a complex landscape with a seemingly unlimited number of tax accounting methods and taxable transaction categories. Many companies want a vendor who has experience with MiFID I, Dodd Frank Act, FACTA and European Market Infrastructure Regulation (EMIR) compliance
  • Built-in credibility. A GRC implementation from a well-known regulatory compliance vendor has more credibility with regulators. These vendors are most familiar with industry best practices and make it their business to stay on top of the latest regulation trends and advancements.
  • Shorter implementation time. Third-party GRC compliance implementation projects are typically much shorter than in-house projects. Highly skilled vendors have developed standardised onboarding and reporting tools and features that meet a range of complex business cases in their product offerings.
  • Continuity safeguards. Established vendors can advise on the inevitable regulatory changes and periodically review processes to make sure that a company continues to comply with regulations. They are also available in the long term to incorporate improvements and changes.
  • Lower total cost of ownership. Companies who opt for an in-house approach frequently forget the hidden costs of doing business, such as accounting for the impact of resource switching, on-the-job training, and project missteps due to inexperience. Also, ongoing maintenance and upgrades require skilled resources that may have been reassigned to new projects, which must be replaced with expensive staff.

The cons of buying a GATCA solution:

  • Higher initial costs. Licensing fees are typically high in the first years to recoup implementation costs and progressively reduced over time. You may not have the budget to purchase a third-party solution in the short term.
  • Some alterations required. Third-party solutions, no matter how sophisticated and comprehensive need customisation to work with the complex mix of legacy and new systems, operating platforms, and dozens of specialised applications that comprise your financial system.

The pros of building an in-house GATCA solution:

  • Built-in knowledge. If your IT organisation has deep technology expertise and a good working relationship with its compliance arm, the interfaces can be readily built between systems to extract and integrate the needed reporting data.
  • Systems familiarity. Typical challenges for regulatory implementation include sourcing data from disparate applications and integrating with existing applications. These issues can be addressed with in-house staff familiar with front and back office system details.
  • Exact fit. There is no need to compromise on business requirements or make extensive customisations to a one-size-fits-all product. Your solution can be built from the ground up to meet the specifications of the various business units involved at any level of granularity.
  • Lower initial costs. Compared to third-party implementations that carry high first-years licensing fees, highly skilled in-house resources can be quickly put to work.

The cons of building an in-house GATCA solution:

  • Coping with complexity. It can be difficult and time-consuming to determine the correct reporting responsibilities or to compile comprehensive and precise data and process requirements.
  • Longer implementations. Those same complexities pose an enormous challenge to in-house resources if they have no previous experience running complicated multi-system integration projects. The stringent timelines GATCA imposes adds more pressure to the mix.
  • Hidden costs. Your in-house staff may need to invest in unplanned resources or new technologies. Reassigning resources also exacts a cost in the delay or cancellation of other important core business projects.
  • Support gap. Companies frequently forget to address ongoing upgrade and maintenance responsibilities once implementation is complete and the team moves on to the next project. 
  • Lack of scalability. In-house solutions may not be capable of scaling or adapting to the continual changes inherent in regulatory compliance.

No matter what you choose, go with an experienced IT partner

Regardless of the choice you make, be sure to engage an experienced IT partner to advise you during any or all of the GATCA implementation planning and implementation stages. Look for a GRC partner who is familiar with designing reporting systems, employs best business practices and thoroughly understands the different products in reportable asset classes. 

As the first GATCA deadline approaches on January 20,2016, now is the time to examine what is best for your organisation— to buy or build. There’s a great deal at stake.