Centenal’s Zac Lucas on Taking CRS Compliance to the Next Digital Level

Zac Lucas, Founder and Head of Legal at Singapore-headquartered Fintech Centenal, is a high flyer. For his 40th birthday, he boarded a Mig29 fighter jet and zoomed up to the edge of earth’s atmosphere at nearly 2500kmph. Back on the ground, but with some lofty concepts in mind, Lucas created Centenal in 2017 to help financial institutions overcome the many on-boarding, data monitoring and reporting requirements imposed by the rollout of the OECD’s Common Reporting Standard (CRS) across the globe. After the early year or two of building and testing, Centenal now has a number of FIs integrating Centenal’s patented CRS Expert software, and the company appears to be flying in clear air, with bigger targets in its sights. Lucas met up with Hubbis on terra firma to explain why he created the company, what his team has achieved to date, and why he sees a remarkably bright future ahead in a world of increasingly complex compliance.

Lucas was a practising lawyer with over 20 years of legal experience and considerable expertise advising on international regulatory law. He has lectured and written extensively on The Organisation for Economic Cooperation and Development (OECD) and regarding CRS. As a result, he has considerable expertise and experience in advising leading private banks, trust companies, asset managers, advisers, wealthy individuals and families as well as governmental authorities on the practical implementation of CRS.

This gives him unique insight into the effects the new legislation will have on wealth management in Asia and around the world, and it was this that gave him the inspiration and motivation for his creation of Centenal in 2017.

Lucas begins with a brief snapshot of the CRS guidelines and highlights the OECD’s Implementation Report from 2018, which in essence reported how there are nowadays only very few jurisdictions around the world that are not adopting the CRS protocol.

Clear targets, locked and loaded

“Anyone professionally involved in the fiduciary or corporate service industries must understand and apply the CRS correctly,” Lucas states, “and this means a great opportunity for us with our CRS Expert solution. The software is designed precisely to make it dramatically easier for FIs here in Singapore, and around the world, to comply internally and externally with the many demands imposed by the CRS.”

Lucas reports that Centenal was a concept he had thought about for several years before he finally committed to fund the idea and leave the immediate world of legalese.

“I had been close to launching the company in November 2016, but for a number of reasons I didn’t commit then,” he recalls. “However, I was emboldened by the great opportunities I saw, and in August 2017 finally decided to form Centenal here in Singapore and soon set about building our team.” From original concept…

Lucas reports that the original idea was that Centenal would create technology that could analyse a set of circumstances and provide regulatory outcome analysis.

“I chose the OECD’s CRS as the first proof of concept,” he explains, “as the CRS was then, and still is, seen as very difficult to understand and implement, so it was a real test of whether the team we put in place could create an algorithm around the CRS to drive fully automated reporting.”

The result of the enormous amount of intensive work that followed Centenal’s creation in 2017 was the launch of CRS Expert, Centenal’s digital CRS compliance and reporting solution.

The watchers keep watching

Lucas explains that the CRS and its application globally is an ongoing challenge. He reports that the OECD in 2019 is now looking very carefully at whether financial institutions correctly follow CRS reporting requirements; at a local/national level, this will lead to spot checks, for example by IRAS in Singapore, with perhaps local CRS compliance audits.

“Essentially,” he notes, “that means those in the wealth management industry are under increasing pressure to ensure correct procedures are in place because they will be assessed on their CRS implementation. Staff, especially client-facing bankers and relationship managers, must be mindful of the need to notify a change circumstance to their clients, which could have a CRS impact on their reportable status, for example.”

Evolutionary steps

Stepping back somewhat from the current environment, Lucas reports that CRS Expert has in its current form evolved very considerably from the original concept he had back in 2016/7.

The CRS Expert solution is now a fully end-to-end software solution, taking the FI from client on-boarding through data monitoring and updating and through to end reporting to the relevant tax authorities.

“It is far more than what we had imagined when we began creating it from scratch,” Lucas recalls. “We came across a considerable number of other outstanding functions and solutions along the way, significantly advancing the offering from our original idea.”

These evolutionary steps appeared as natural progressions during the beta testing phase, and from the feedback the team received at that time. “The Centenal Digital Platform today provides much more to clients than CRS analysis work,” Lucas explains, “and has embedded within it the FATF 2012 guidelines on beneficial ownership, as well as a broad client on-boarding and data management functionality.”

CRS Expert was in fact primarily conceived as an analytical tool - client structures are graphically recreated through the use of relevant icons, and the resulting structure is subjected to a CRS algorithm analysis, resulting in a written report containing supporting statutory referencing.

Mach 5 and rising

“The CRS analysis reports are generated in under a thousandth of a second, even for highly complex structures,” Lucas reports. “This was the original LegalTech vision of analytical support for compliance teams struggling to implement the CRS. Once client structures are input into the system, they can then be monitored, and any changes reflected both in an audit trail as well as a reporting trail.”

This last characteristic - the ongoing monitoring of structures and client reportability - is where Lucas sees the real challenge for CRS management.

“The initial classification of clients was relatively easy,” he explains, “but to maintain the accuracy of the reports is, for clients, an ongoing data management nightmare that financial institutions are only just beginning to fully comprehend.”

He elucidates, observing that even for a simple structure comprising a trust, for example, with an underlying company and a bank account, the reportable variations are in the hundreds and for a mid-size trust company with perhaps more than 100 structures, there would be variations in the 100,000s to monitor.

“This is where current spreadsheet compliance becomes a real problem,” he explains. “The ‘XML schema’ market, which is the final step of reporting to the relevant tax authorities, simply side-steps this problem in its entirety, only helping right at the end of the compliance chain. But we set out to position CRS Expert as a holistic suite of solutions in one software from the start of the client onboarding process, then the reporting life cycle and all the way through to account closure.”

Centenal’s customer base

Lucas explains that Centenal’s target clients comprise trust companies, boutique private banks and asset managers of varying sizes. “But the opportunities are immense, as the addressable market for CRS Expert is, in fact, any financial institution subject to the CRS regulations in the 104 countries that have implemented it.”

That, he reports, equates to around 400,000 financial institutions, reporting an estimated 1 billion accounts a year, mostly using a semi-manual process.

“We would, of course, bring tremendous efficiency gains to the CRS compliance function for any of these FIs,” Lucas explains, enthusiastically. “The resultant advantages are many, especially the more accurate, productive, efficient and cost-effective use of what are nowadays increasingly costly compliance resources.”

A bright future

Centenal’s future might soon be further brightened if the company forges an alliance with a ‘Magic Circle’ global legal firm or one of the ‘Big Four’ worldwide accounting firms. “This is a distinct possibility,” Lucas confirms, “but we are not ready yet to make any statements on that.”

Lucas also reports that there seems to be an oversupply of vendors offering AML screening software, but not many are focused on dealing with the analytical headache surrounding the actual implementation of the myriad regulations affecting FIs. “The RegTech and LegalTech sectors will continue to grow, but the solutions and providers will have to meet the challenge of greater substantive complexity,” he concludes.

And finally, Lucas sets out his priorities for the foreseeable future. “We need to grow the business, then increase the scope of our offering beyond CRS, and also secure a global strategic alliance.”