Financial institutions continue to underestimate how frequently they breach global tax reporting rules, with many falling short of their obligations under FATCA and CRS every year.
In a recent post by Scott Nice of Label on LinkedIn, he detailed how most financial institutions don’t realise they’re breaching FATCA/CRS rules every year.
As the sector prepares for the arrival of CARF, the risks linked to misreporting are accelerating and becoming more visible. Despite widespread investment in compliance processes, many firms still operate with blind spots that lead to ongoing, repeated reporting failures.
One of the clearest misconceptions in the industry is the assumption that misreporting is a purely regulatory concern. In reality, it is a significant business risk that can trigger a chain of damaging consequences. Organisations that file incorrect returns or overlook key updates to customer information face much more than a minor compliance issue. Reporting failures can severely impact operational, legal, reputational and customer-facing areas of the business.
The reputational fallout can be particularly fast and severe. Once regulators or customers identify inaccuracies, trust erodes quickly. Financial institutions rely heavily on confidence and credibility, so any loss of trust can have a direct effect on business performance. Misreporting can also create long-lasting perception issues that become difficult to reverse, especially as global regulatory scrutiny intensifies.
Firms also face considerable legal and regulatory exposure when FATCA and CRS reports contain errors. Authorities can launch investigations, impose financial penalties or require extensive remediation work. These interventions can take months or even years to resolve, diverting internal resources and increasing operational burden. Additionally, mandatory remediation efforts can disrupt business continuity and slow down strategic programmes.
Operational costs can escalate sharply too. Putting errors right after reports have been submitted is significantly more expensive than preventing them in the first place. Many firms still rely on manual reviews or outdated processes that only take place at year end. This approach is fundamentally misaligned with FATCA and CRS expectations, which require continuous monitoring throughout the year.
Misreporting also has a direct customer impact that is often overlooked. When institutions file incorrect data, clients may face unnecessary audits or additional scrutiny from tax authorities. This can damage customer relationships, introduce friction and cause reputational harm for both the customer and the institution.
A major driver of misreporting is the industry’s reliance on late or manual data reviews rather than real-time monitoring. Contrary to popular belief, reporting failures rarely stem from complex edge cases. Instead, they are typically caused by simple process gaps, outdated workflows or failure to identify changes in customer circumstances when they occur. FATCA and CRS require timely, ongoing reviews—not retrospective checks months after the fact.
As CARF approaches, the cost of failing to modernise reporting processes will continue to rise. Firms that rely on manual tasks or year-end routines will increasingly find themselves exposed, both operationally and commercially. The institutions that invest early in automated, event-driven monitoring will be better positioned to avoid misreporting and build more resilient compliance frameworks.
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