Outsourcing DAC8 Compliance: When and How

For many CASPs — particularly smaller operators — outsourcing some or all of their DAC8 compliance may be the most practical approach. This article examines the outsourcing options, benefits, and risks.

What Can Be Outsourced?

DAC8 compliance activities that can be outsourced include XML report generation and submission, TIN validation services, due diligence review and remediation, legal interpretation of national transposition requirements, staff training and knowledge transfer, and quality assurance and audit of compliance processes.

Activities that are more difficult to outsource include the collection of user data (which requires integration with the CASP's platform), real-time transaction classification (which requires access to the trading engine), and ultimately the regulatory responsibility for accurate reporting (which remains with the CASP regardless of outsourcing).

Benefits of Outsourcing

Outsourcing can provide access to specialized expertise that is difficult to hire in-house, faster implementation through the use of pre-built solutions, reduced fixed costs by converting compliance spending into variable expenses, ongoing regulatory monitoring and updates managed by the service provider, and risk transfer for certain compliance activities.

Risks and Mitigations

The main risks of outsourcing include loss of control over compliance quality, dependency on the service provider's capabilities and availability, data security risks when sharing sensitive data with third parties, and regulatory risk since the CASP remains responsible regardless of outsourcing.

These risks can be mitigated through clear contractual obligations including service levels and penalties, regular audits of the service provider's performance and security, maintaining internal expertise to oversee the outsourced activities, and establishing exit plans in case the outsourcing relationship needs to end.

The Managed Compliance Model

A managed compliance model — where an external provider handles the end-to-end DAC8 reporting process while the CASP retains oversight and approval — is an increasingly popular approach. This model offers the benefits of outsourcing while maintaining the CASP's control over the final output.

Under a managed compliance model, the provider collects the required data from the CASP's systems, performs the processing, generates the report, and presents it for the CASP's review and approval before submission. The CASP maintains oversight and final responsibility.

Conclusion

Outsourcing DAC8 compliance is a viable strategy for CASPs that lack the internal resources or expertise to manage the process independently. The key is choosing the right partner, maintaining oversight, and retaining ultimate responsibility for compliance quality.