It’s not new news that BNP Paribas got tagged for nearly $USD9Bn for doing business with Iran, Sudan et al. Doing business with “Specially Designated Nationals” has been a no-no…risky…find yourself Kentucky Fried on that Counterparty since …well, forever. But there are several things happening right now that could be viewed from the beach as a pretty big wave on the horizon.
KYC not KFC
“Know Your Counterparty” is getting a fresh look based on a number of things and not just the BNP fine. Here’s what you need to know:
- FATCA is live and applicable to nearly all financial firms. In a nutshell, the Foreign Account Tax Compliance Act dictates that if you have non-US entities, and those entities have US counterparties you may need to report the account to the IRS. Failure to do so will subject payments to a 30% withholding.
- GATCA , the global version of FACTA is coming. The Global Account Tax Compliance Act is the global (G20) rollout of FACTA. So if you are a US company with EU counterparties you may need to be ready to report in the near future. The takeaway here is that both FATCA and GATCA turn on a sound fundamental KYC program.
- Collateral Management & Collateral Optimization: Based on EMIR, Dodd Frank and other regulatory acts, the ability to quickly assess a collateral position with any given counterparty has taken a high priority. Of course there are always really cool optimization opportunities for those that put in the effort. This is becoming a bigger and bigger deal since many CCPs have substantially expanded the scope of types of collateral that can be posted.
Forgive me, but I’m going to put on my sales hat for a moment. The success of a good KYC/Collateral management program turns around great integration. The reality is that it requires the convergence of what are likely a handful of older applications (around counterparty management) and perhaps some new ones (for collateral management). Not only does the integration have to seamlessly move data, but support the overall counterparty management process. That’s exactly why we built K3.