CRS 2.0: What financial institutions need to know about the amended Common Reporting Standard

Following the Organisation for Economic Co-operation and Development’s (OECD) comprehensive review of the Common Reporting Standard (CRS) framework, a series of amendments has been introduced to strengthen tax transparency, address developments in digital finance and digital assets, improve data quality and increase consistency in reporting across participating jurisdictions.

The revised standard is being implemented progressively by jurisdictions worldwide and will have a material impact on basically all financial institutions and other entities subject to CRS obligations. While implementation dates will vary by jurisdiction, affected entities should begin preparing well in advance to ensure compliance with the enhanced requirements.

Enhanced Due Diligence Requirements

One of the most significant changes under CRS 2.0 is the strengthening of due diligence procedures. Financial institutions will be required to collect, validate and maintain more robust documentation supporting the tax residency status of account holders and controlling persons. Greater emphasis is being placed on the quality and reliability of self-certifications, verification of tax identification numbers (TINs) and the identification of inconsistencies between information provided by account holders and controlling persons and information otherwise available to financial institutions. As a result, financial institutions should anticipate increased requests for supporting documentation, updated self-certifications and additional information relating to account holders and controlling persons.

Updated self-certification requirements

CRS 2.0 places a significantly greater emphasis on the collection and validation of self-certifications. The OECD has strengthened the requirements surrounding the reasonableness checks that financial institutions must perform when relying on self-certifications provided by account holders and controlling persons. Financial institutions are expected to ensure that information obtained is consistent with other documentation available to them and to address any discrepancies before relying on a self-certification for reporting purposes. As a result, many existing CRS self-certification forms currently in use may no longer be sufficient to meet future reporting requirements.

Updated forms are expected to capture additional information, including more detailed tax residency data, tax identification numbers, enhanced controlling person information and confirmations relating to the accuracy and completeness of information provided. Financial institutions should therefore expect requests to refresh existing self-certifications of account holders and controlling persons, complete revised forms for new account holder onboardings and provide further supporting documentation where necessary.

Expanded Reporting Requirements

CRS 2.0 introduces additional reporting fields and enhanced data requirements designed to improve the accuracy and adequacy of information exchanged between tax authorities. In many cases, reporting entities will be required to provide more detailed information concerning account holders and controlling persons, including enhanced TIN information, place of birth details, account classifications and more detailed categorisation of controlling persons. Tax authorities are expected to apply increased scrutiny to incomplete or inaccurate reporting. This will necessitate updates to onboarding procedures, record-keeping practices and remediation exercises for existing records of account holders and controlling persons.

Strengthened CRS XML schema requirements

As part of the CRS 2.0 initiative, the OECD has introduced a significantly enhanced CRS XML schema to facilitate the exchange of more detailed and higher-quality information between tax authorities. The revised schema supports the additional due diligence and reporting requirements introduced under the amended CRS and enables tax authorities to perform more sophisticated validation, matching and risk assessment activities. With the enhanced XML schema, several important changes are introduced, including:

• New data fields relating to account holders and controlling persons (such as the capacity or role);

• Enhanced TIN reporting requirements, including the issuing jurisdiction;

• New account classifications and account-type reporting fields;

• Confirmation of the status and validity of self-certifications obtained;

• Additional information relating to joint account holders and beneficial ownership structures; and

• New reporting fields required to support the expanded scope of CRS assets and products.

In addition, the revised XML schema incorporates more stringent validation rules and data quality controls. Reporting files containing incomplete, inconsistent or incorrectly formatted information may be rejected by tax authority portals or trigger additional enquiries and remediation requirements. As a result, financial institutions and other entities will face greater obligations to ensure that account holder and controlling person information is complete, accurate and maintained in a format that supports electronic reporting. The enhanced technical requirements will require updates to onboarding processes, account holder / controlling person databases, CRM systems and reporting tools. Existing data records may need to be reviewed and remediated to ensure that all newly required fields are populated prior to reporting.

This is expected to result in substantial one-off implementation efforts as well as ongoing increases in annual compliance and reporting activities. Furthermore, tax authorities are expected to make increasing use of automated validation and cross-checking mechanisms. Consequently, information reported under CRS will be subject to greater scrutiny, with inconsistencies between account holder / controlling person self-certifications, information and tax residency records and previously submitted CRS reports becoming more readily identifiable. From a practical perspective, the enhanced CRS XML schema will require significant investment in data remediation, systems development, reporting technology, validation controls and ongoing data governance. In many cases, existing records will need to be reviewed and updated to meet the new reporting standards, resulting in increased compliance effort for both financial institutions and service providers.

Data Quality and Regulatory Oversight

Tax authorities globally continue to focus on improving the effectiveness of automatic exchange of information regimes.

CRS 2.0 reflects a broader effort by the OECD and participating jurisdictions to enhance the quality, consistency and completeness of information exchanged between tax authorities. As a result, reporting entities can expect increased regulatory scrutiny, more detailed compliance reviews and greater expectations regarding governance, documentation, procedures and audit trails supporting CRS reporting positions. Many jurisdictions are also expected to introduce updated local guidance, reporting schemas and technical requirements to support implementation of the revised standard.

Digital Assets and Digital Currencies

A key objective of CRS 2.0 is to address developments in the digital asset sector. The revised CRS expands its scope to ensure that certain indirect investments in crypto-assets, including investments held through investment entities, collective investment vehicles, trusts, derivatives and other financial products referencing crypto-assets, are appropriately captured within the reporting framework. These amendments are designed to work alongside the OECD's Crypto-Asset Reporting Framework (CARF), which introduces separate reporting obligations for certain crypto-asset service providers. Investment funds, trusts and other entities with exposure to digital assets should consider whether existing CRS classifications, due diligence procedures and reporting processes remain appropriate.

The scope of CRS has also been expanded to include certain electronic money products and central bank digital currencies (CBDCs), recognising the increasing role of digital financial instruments in the global financial system. Entities that utilise digital wallets, electronic money arrangements, payment platforms or other emerging financial technologies may be impacted by these changes. Existing classifications and reporting assessments may therefore require review to determine whether additional reporting obligations arise.

Conclusion

CRS 2.0 represents the most significant enhancement of the CRS framework since its introduction. The changes will increase compliance obligations for reporting entities, expand the scope of arrangements and assets subject to review, require enhanced due diligence and validation procedures and necessitate the collection and maintenance of additional data. As your reporting service provider, Bolder will be undertaking significant work to update our systems, procedures, onboarding requirements and reporting processes to ensure continued compliance with evolving international standards. We anticipate that the implementation of CRS 2.0 will increase operational complexity and substantially increase compliance and reporting efforts.

Even where an entity is already compliant with current CRS requirements, CRS 2.0 may require reassessing existing classifications, account documentation, onboarding procedures, and investor records. Many reporting entities will need to undertake remediation exercises to obtain missing data, refresh self-certifications, update internal procedures and enhance governance controls. These exercises can be substantial, particularly for entities with large investor populations, complex ownership structures or cross-border operations.

Accordingly, clients should expect an increase in the costs associated with FATCA/CRS classification, due diligence, remediation support, data collection, ongoing monitoring and annual reporting services. We will communicate further details regarding implementation timelines and any applicable fee adjustments as the relevant jurisdictions confirm their local adoption requirements. It is recommended that clients begin reviewing their existing CRS governance frameworks and prepare for additional information requests in the coming months.

Assess Your CRS 2.0 Readiness with Bolder

Should you have any questions regarding the impact of CRS 2.0 on your structure, please contact your usual Bolder representative or email governance@boldergroup.com. Additional resources are available at www.boldergroup.com.