De Nederlandsche Bank (DNB) is committed to ensuring a safe financial sector. One of the tasks is to assess whether financial institutions comply with the law. DNB calls this “integrity supervision”. DNB also checks whether financial institutions do not take too much integrity risk, meaning that criminals could launder money through financial institutions leading to financial and reputational risks.
Not only Dutch headquartered financial institutions are in scope of this so-called integrity supervision, also Dutch branches of foreign financial institutions with a license to operate in the Netherlands are supervised by DNB. This means that financial institutions with a license to operate therefore will need to have in place an effective integrity risk analysis that is reviewed on a regular basis.
Integrity risk
One of the relatively new topics related to integrity risk is customer tax integrity. In 2019 DNB published the guidance document Good Practices Customer Tax Integrity Risk Management for Banks and a separate version for trust offices. This guidance document provides banks practical tools for implementing risk management as it relates to tax avoidance and tax evasion in order to safeguard sound and business operations. According to DNB, a bank should therefore assess its customer tax driven motives. This is a complex process where the outcome also depends on a bank’s own tax risk appetite
Customer Tax Integrity as part of the ESG strategy
Customer Tax Integrity (“CTI”) can be seen as more than a regulatory requirement. CTI can also be approached as part of the ESG framework. Driven by the United Nations Sustainable Development Goals (SDGs) financial institutions can play a crucial role in solving global problems around poverty, health, inequality, climate change, peace and justice. By focusing on specific SDGs financial institutions give substance to sustainability. Signatories of the UN Principles for Responsible Banking are well aware of this social responsibility and have aligned their strategy with the SDGs and the Paris Climate Agreement. Customer Tax Integrity is closely linked to principle 3 Clients and Customers:
“We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.”
However, being a signatory of the UN Principles of Responsible Banking is not a requirement for embracing customer tax integrity as part of ESG. It is one of the many examples that shows that customer tax integrity is not only driven by regulatory guidelines but also by codes of conduct, voluntary tax principles and international initiatives in the field of tax transparency. Besides, customer tax integrity is not only relevant for banks, but for all financial institutions.
Awareness of ESG tax risks can support you with the fight against financial crime and neglecting them can result in reputational damage or legal exposure. Including ESG tax risks in your CDD processes mitigate these risks. Knowing there will be a shift from voluntary to mandatory frameworks and reporting, acknowledging CTI as part of ESG makes your organization future proof.
Explainer - CTI and its position within the Integrity Risk Framework
More than an information reporting obligation and more than tackling tax evasion in the context of AML
Factsheet - Practice among Europe
How are banks coping with CTI - benchmark results
How can PwC help?
Banks are free to use the good practices published by the DNB. The guidance is not legally binding. However, it is likely that supervision and possibly enforcement will follow at short notice, as several years have passed since the publication of the guidance document. This raises the question how ready your business is to show a good understanding of DNBs Good Practices.
PwC can help you implement or improve your customer tax integrity framework within your business. We believe that customer tax integrity should be part of the integrated CDD process and should be implemented in the existing control frameworks based on policies and procedures.
Depending on your current level of maturity, we can offer services along 6 building blocks.
1. Tax Risk Appetite
- Analyze current tax integrity framework and design of a tax integrity risk appetite and policy.
2. CTI questionnaire and Integration CDD Policy
- Perform gap analysis on the basis of existing client outreach questions/documents;
- Design CTI questionnaire including weight system
3. Remediation and Portfolio Scan
- Herstel risicoanalyse
- Geïntegreerde risico-analyse van de klantenportefeuille
4. Training & Material
- Support to improve customer tax integrity awareness within your organization
- CTI Due Diligence
5. CTI Due Diligence
- Support with analysis of complex tax cases based on your tax risk appetite and policy
6. SIRA & Internal Reporting
- Determine the effectiveness of your SIRA for tax integrity and support with the development of the monitoring of your SIRA for tax integrity
- Assistance with the determination of your internal and external tax reporting requirements and help you to transparently communicate on your approach in line with your tax integrity policy;
- Help with the design and deployment of technology, for record keeping, automation of processes and advanced data analytics.
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