Ask The Expert: Mr Ross K. McGill
Ross McGill is the Chairman and founder of TConsult Ltd, a UK based regulatory tax compliance specialist where he has held a variety of senior roles over the last 21 years. He currently oversees company strategy, is a prolific speaker and has written ten books on withholding tax, some already in their second editions.
Ross took part in an interview with Muinmos’ CEO, Remonda Kirketerp-Møller, entitled ‘Why is tax now part of onboarding efforts?’. Here he elaborates on the firm’s commitment to supporting compliance at financial institutions while fostering innovation.
How is TConsult adapting its proposition in response to evolving regulatory requirements?
We started as a simple consultancy twenty one years ago, and now as a consultancy and regtech firm have clients in 28 countries, mainly tier 2 banks and brokers. We quickly realised that we were getting the same questions from financial institutions over and over again about the same tax operational and compliance problems. This spoke to a clear market need, so we developed an online Tax Compliance Toolkit to bring together a range of resources that firms could use to improve their compliance efforts. While we were doing that we found that the biggest problem our clients faced was the use of paper-based tax forms like the US W-8 series, CRS and FATCA self-certifications. So, in parallel, we also developed the Investor Self-Declaration system (ISD) to allow one online electronically signed digital form to encode the complex tax logic needed to comply with FATCA, CRS, TRACE and QI regulations.
What role do customer–centric approaches play in driving compliance and innovation simultaneously?
Three of the biggest problems that financial institutions have when it comes to tax are awareness, culture and language. Global anti-tax evasion regulation from the US and OECD generally require the filling out of complex tax forms and subsequent validation by a financial institution. These are not technically part of KYC, but are collected at the same time. Over 30% of W-8s in Europe are not fit for purpose and that number rises to over 70% in Asia. There are estimated to be around 900 million W-8s alone in circulation globally. These forms are written in tax technical language and often investors do not understand how to fill them in correctly or what the consequences are. Financial firms are equally challenged to comply with complex rules before they can either determine an account holder is reportable under anti-tax evasion regulations like FATCA and CRS or should benefit from tax relief under US QI regulations or OECD’s TRACE. Understanding the customer’s viewpoint is critical and efforts in this direction can deliver benefits in improved compliance for financial institutions. Both the Tax Compliance Toolkit and the ISD system render in a customer’s own language, making it easier for the customer to understand what to do. On-screen help systems make sure that the customer is helped through the process in a frictionless way and the user interface has been design to be minimal and easy to use.
With the rise of fintech innovations, how are TConsult and Muinmos leveraging technology to streamline compliance processes while maintaining high standards of customer service and satisfaction?
Most of these tax forms are collected today as paper forms downloaded from the internet and completed and signed as paper forms. This happens most frequently at customer onboarding. We recognised that Muinmos is a digital leader in this space, so we collaborated to create a module in Muinmos’ KYC onboarding platform that can be triggered by a financial institution. When that’s done, each client that is being onboarded in the Muinmos KYC system is directed to the ISD where they respond to a series of questions and electronically sign to certify their information. Clever programming means that some data entered into an ISD, such as country of residence, can be used to trigger (or not trigger) certain other questions, such as claims of tax treaty benefits. The ISD looks nothing like an original W-8 form, and its doesn’t need to because the regulations allow substitute forms, so its much easier for a customer to understand what they’re signing. The customer and the financial institution both get copies of the form, but through the use of APIs, the financial institution also gets the raw data from the form in machine readable format. That makes it easier for the financial institution to perform its due diligence systemically rather than have human beings involved in form validation and due diligence.
What do you see as the biggest opportunities for collaboration between fintechs and regtechs in navigating regulatory challenges and driving industry-wide innovation?
The biggest opportunities for collaboration lie in leveraging each other’s strengths—fintechs’ technological innovation and regtechs’ deep regulatory knowledge. By working together, regtechs and fintechs can create a more dynamic, secure, and customer-centric financial ecosystem. Another significant and possibly unique advantage for the banks is that they have the data. Data is wealth for a financial institution, especially through relationships with fintechs and regtechs, because they can use it to automatically perform the due diligence tests required for cross-border reporting such as FATCA, CRS and US 1042-S reporting. The data can also be used to implement risk prevention policies by weeding out clients that don’t meet the firm’s compliance policies.
Timing is particularly important here because most of these tax forms naturally expire after three years on December 31st, so in September each year, most financial institutions are starting to solicit clients for renewed forms, because, without renewal, their tax rate on dividends can go from 15% to 30% overnight. This provides a great opportunity to pivot from paper-based to digital self-certifications. Firms can choose whether to do this in a ‘big bang’ or ‘phased approach’. In a phased approach only those paper forms expiring this year will be replaced with digital forms, so over a three-year period a financial institution can go from 100% paper to 100% digital. ‘Big bang’ is another way to get to 100% digital much quicker, but both methods work.