kas selections may 2012
DESCRIPTION
A quarterly newsletter from KAS BANK.TRANSCRIPT
Interview with Pension Fund Xerox
KAS BANK raises its profile in the German market
AIFMD/UCITS Congress
OTC Derivatives under EMIR
KAS BANK and Solvency II
Kickback fees set to be banned: a recipe for greater transparency or for additional hidden costs?
Collateral and liquidity management in practice
Tax on financial transactions
KAS SELECTIONSVolume 19, issue 2, May 2012
I do not know about you, but I sometimes feel as though my head is spinning from all the abbreviations - EMIR, AIFMD, UCITS, Solvency II - used in Directives for the financial sector in Europe. However, there is a common denominator between all these Directives. And that is to promote transparency in the financial sector through better monitoring. All in the interest of protecting consumers and restoring confidence in the financial sector. And for consumers we can also read private investors, savers, pension fund members, policyholders, etc.
KAS BANK is a fervent supporter of greater transparency in the financial sector, particularly with regard to providing a system of central clearing for OTC derivates. The trade in derivatives and lack of regulation are generally considered to be one of the major causes of the financial crisis. The EMIR Directive provides for central clearing of derivatives transactions. This will inevitably have ramifications for margin requirements. For this reason, we examine one or more aspects of EMIR in each issue of KAS Selections. Just as we do with Solvency II for insurers. In partnership with several large insurers, we have set up a special Solvency II Project Team to ensure that we are fully compliant.
Other important priorities in the monitoring of financial institutions are internal governance and risk control. Niels van Heesen, the director of Stichting Pensioenfonds Xerox (Xerox Pension Fund), explains how his company pension fund has provided for its risk budgeting. He believes that it is essential for institutional investors to think more in terms of risk exposure and to consider the consequences of certain decisions for the financial position of the fund.
Transparency also means cost transparency. A good example is the proposed ban on kick-back fees for financial advisers. Mark Schilstra explains the consequences of the ban for the revenue model of investment funds and advisers.
We also report on the congress recently organised by KAS BANK to discuss the European Directives AIFMD and UCITS IV/V. Interpreting these Directives is proving to be quite a challenge for lawyers and investment firms. KAS BANK can help you in this regard.
A tax on financial transactions is a controversial issue in Europe. We survey the current status of this discussion. We also provide a practical example of collateral and liquidity management in the case of pension funds.
KAS BANK Germany is attracting a lot of attention in Germany. Our proposed partnership with dwpbank was a popular subject of discussion at two important recent events for the German financial industry. Finally, Laurens Vis once again gives us his own particular views of developments in the securities and pensions industry. This time he examines the debate concerning Defined Benefit versus Defined Contribution schemes. Or is a hybrid form possible?
As always, I conclude with a call for you to share your comments, suggestions or other remarks about KAS Selections with us. This enables us to continue to tailor the contents of KAS Selections to developments in the market.
Sikko van KatwijkManaging Board of KAS BANK
Contents:Interview with Pension Fund Xerox 3KAS BANK raises its profile in the German market 6Laurens Vision 8AIFMD/UCITS Congress 10OTC Derivatives under EMIR 14KAS BANK and Solvency II 15Kickback fees set to be banned: a recipe for greater transparency or for additional hidden costs? 16Global Custody Network News 18Collateral and liquidity management in practice 20New clients 21Personnel notes 21Tax on financial transactions 22
Comments on this issue, suggestions for future articles and mailing list requests should be addressed to:
NetherlandsClearing & Banking ServicesAssociate director:[email protected]
Fund & Insurers ServicesAssociate director:[email protected]
Institutional ServicesAssociate director:[email protected]
Sales & Business Development (S & BD)Head of S & BD:[email protected]
German BranchManaging Director:[email protected]
KAS Investment Servicing GmbHCEO & Managing Director:[email protected]
UK BranchManaging Director:[email protected]
Translation:Wilkens c.s.
Text editor:Robbert Veltman
Editor:Carla BoogersKAS BANK N.V.Marketing & Commercial DevelopmentP.O. Box 24001, 1000 DB AmsterdamThe Netherlands +31 20 557 [email protected]
Graphic Design:Ebbenhorst Design, De Meern
Print:KAS BANK,Document & Systems Services
KAS Selections is a quarterly newsletter from KAS BANK N.V.Although the information in this issue is drawn up with the utmost precision, no rights can be derived from it.
Volume 19, Issue 2, May 2012
KAS Selections Editorial
3KAS Selections • May 2012
Switch to thinking in terms of risks
Interview with Pension Fund Xerox
Pensioenfonds Xerox (Xerox Pension Fund) was created
through the merger of the Xerox Venray pension fund and
Stichting Pensioenbelangen Amstelveen (Amstelveen
Pension Interests Association). Stichting Pensioenfonds
Xerox was established on 28 July 1999. As a company
pension fund, the Fund administers the pension schemes
for employees of Xerox (Nederland) B.V. in Breukelen,
Xerox Manufacturing (Nederland) in Venray and Veenman
B.V. in Capelle aan de Ijssel. The fund has 1,181 active
members, 1,922 pension beneficiaries and 2,033 former
employees from these three companies, with assets under
management totalling 700 million euros.
We spoke to Niels van Heesen, the director of Stichting
Pensioenfonds Xerox, about developments within the fund
and the partnership with KAS BANK in terms of
structuring risk management.
What have been the most important
developments within the pension fund since
the merger?
‘Before the merger, Xerox Manufacturing and Xerox
Nederland each had their own pension scheme and their
own board. Xerox Manufacturing did not have its own
pension fund, but was directly insured. Xerox Nederland, by
contrast, did have its own pension fund but was fully
reinsured at that time. Nevertheless, both companies had
the same pension contract. Since 1 January 2000, we have
administered these combined pension schemes ourselves.
In 2006, we also took over the accounting of these schemes
and in 2009 we incorporated the pension scheme of
Veerman B.V.
Administering a single pension scheme and carrying out the
accounting duties ourselves have had most impact. Hiring
people, purchasing systems in order to be able to administer
the scheme, defining and structuring processes - it was
quite a job sorting everything out. Everything had to be up
and running within just a few months.’
Has the introduction of the Financial
Assessment Framework (FAF) also had an
impact on staffing levels within pension fund
administration?
‘We were responsible for the pension administration of
several funds: two pension funds providing for the over 65s,
an early retirement pension fund, an executive pension fund
and a flexible pension fund. Each fund had to be audited
and subjected to actuarial certification separately. And each
fund had to produce an annual report. That took up a lot of
our time. Switching to a single scheme simplified all that and
had the added bonus of saving work. As a result we didn’t
need to take on any new employees after the introduction of
the FAF in 2007. We also launched a website, complete with
pension planner, in 2005. That’s meant that we now receive
considerably fewer questions. Our members can use the
pension planner to calculate their pension benefit if they
Niels van Heesen, director of Stichting Pensioenfonds Xerox
In 2005 we launched a website complete with pension planner. That’s meant that we now receive considerably fewer questions
4 KAS Selections • May 2012
choose to retire at the age of 62, for example, or to see what
the consequences are of a high/low structure. Members who
contact us with a question are now better informed in
advance. Thanks to these measures, we have sufficient
manpower to ensure we can meet the stricter requirements
of De Nederlandsche Bank (DNB).’
Which market developments have been
important for the pension fund?
‘The introduction of the FAF and the switch from the fixed
notional interest rate to a variable interest rate have had a
significant impact. The interest rate issue is particularly difficult
to communicate well to members. Try explaining that in spite
of a good return on investments, you might nevertheless be
compelled to cut pensions. It is a shame that DNB’s policy is
one of retrospection. You would expect a regulatory authority
to think ahead about crises. Now we have to submit a crisis
plan by 1 May 2012, for example, whereas that should really
have been done years ago.
In my opinion, one drawback of the various directives and
guidelines is that regulations are transforming pension funds
from long-term investors into short-term investors. In the final
analysis, we are long-term investors.
It’s time we simplified pension arrangements in the
Netherlands. The pension agreement reached between the
government, employers’ organisations and trade unions on
the future of the pension system in the Netherlands doesn’t
help much in this regard. On the contrary, it looks as if
everything will become even more complex and difficult to
administer.’
How is the investment process structured in
the case of Pensioenfonds Xerox?
‘Once every three years, we commission an ALM study by an
independent actuary firm. This gives a pointer to the possible
asset mix. The previous ALM study, for example, indicated
that commodities might have significant added value for us.
These results then form the basis for further decision-making
by the investment committee, which I chair. The investment
committee consists of two other board members and an
independent adviser. Besides being a member of the
investment committee, the external adviser tracks all available
investment products and asset managers in the market on
our behalf. His role in relation to the selection of a new asset
manager includes drawing up a longlist of asset managers
based on several selection criteria. The investment committee
decides which names appear on the shortlist. Assisted by the
external adviser, I then hold meetings with the selected asset
managers. The investment committee eventually sends a
well-substantiated recommendation to the trustees.’
How is the board composed in terms of
knowledge and expertise?
‘We examine the collective expertise and whether it is
covered within the expertise matrix. This ensures that the
board has sufficient expertise to judge whether the
investment committee’s proposals have merit. The ALM
study is discussed by the entire board. However, the ALM
study only examines the likelihood of underfunding, an
acceptable premium and the strategic mix. We didn’t think
this went far enough. In the interest of good decision-making,
we would like the board to base its deliberations on our risk
exposure. Risk management as a whole consists of taking
into account risks and risk budgeting. This formed the basis
for our discussions with KAS BANK and led us to develop our
risk budgeting commitment together with you. Looking at risk
monitoring, it seems that a sizeable part of the risk budget is
engulved by ranges. In itself that’s nothing to be concerned
about, but it’s still important to be aware of the risks you are
exposed to and which mandates you give to an asset
manager. If we decide to change track, by placing greater
focus on emerging markets, for example, then risk budgeting
allows you to examine the consequences of that change in
strategy.’
CV Niels van Heesen
Niels van Heesen joined
Pensioenfonds Xerox (Xerox
Pension Fund) on 1 January
2000. He has always worked in
the pension industry. He started
at Consultas, then a pension
consultancy owned by ABN Amro, before moving to the
Wolters Samson Group pension fund, then the TDV
pension fund, and then Watson Wyatt where he set up a
consultancy practice to support small pension funds.
5KAS Selections • May 2012
Do you also have a training/development plan
for the board?
‘Yes, we have a training and development plan for each new
member of the board. New candidates can’t ‘simply’ join the
board, but are required first to complete a general training
programme. A prospective member’s candidacy is not
proposed to DNB until he/she is considered to have
sufficient expertise. Following the implementation of risk
budgeting, the board attended a special study day on this
topic. The board now has to embrace a different way of
thinking. The risk budget allows you to determine
immediately what the impact of a particular addition will be
on the budget. Will it be increased or decreased? Is my risk
exposure heightened? Is that what I want? Maybe not,
meaning that something else has to be deducted or taken
from elsewhere so that it falls within the constraints of the
risk budget again.’
How is your risk policy defined?
‘Two years ago, all the risks were surveyed by two different
working groups; the financial risks by the investment
committee and the non-financial risks by the second working
group. Once all the risks had been identified and listed, we
examined the impact of those risks on the fund. We repeat
this process on a regular basis. Of course, there is a danger
that you only examine risks you are already aware of. That is
also the problem with the present crisis. We were not in a
position to see it coming. In the past, for example, less
attention was paid to the counterparty risk. It was also a
commonly held belief in the market that cash was
tremendously safe. But not everyone knew that those cash
funds were being reinvested in mortgages, thus constituting
a risk again. That explains why DNB has made the
mandatory focus on risk recognition a primary issue. Many
different parties are now engaged in this, but each time it
comes down to looking back at past events. So even now
we can’t guarantee that new risks won’t occur in the future.’
Why did you decide to develop risk budgeting
together with KAS BANK?
‘As our custodian, KAS BANK has all the necessary
information available. That is an extremely valuable
database, because you can do so many things with that
data. Risk management is just one of them. We could go to
another party, but then we would have to supply them with
lots and lots of information. We prefer not to do that. That is
why it was our first choice to assign the risk budgeting to
you.’
Do you see other possibilities for further
improving the risk process?
‘The evaluation of the crisis has shown us that we have
mainly been affected by the fall in interest rates; that has
been our biggest problem. No one would have expected
interest rates and share prices to fall at the same time.
Nevertheless, we haven’t been able to identify anything that
might be construed as an error on our part. We didn’t invest
in complex products. Maybe it would have been better if
we’d absorbed the longevity risk in one go, or said: we still
need to cut your pension because you’re all living much
longer and will therefore draw your pension for many more
years. Then we wouldn’t have as many problems as we do
now.
Investment cost transparency is also important, of course.
We used to do business with a party that was very active in
fixed-income securities and who churned the portfolio three
times. You might then wonder whether the associated
transaction costs are all necessary, and whether the costs
outweigh the benefits. Obviously, you have to be careful not
to compare them like for like. After all, it’s difficult to
compare the costs of different pension funds. Those costs
depend on whether you pursue an active or passive
investment strategy, whether you work for one or more
employers, or what your service level is, for example. So you
can’t just say these are the costs per member, and then
compare them with another pension fund. Any subsequent
cost lists that you draw up aimed at comparing pension
funds can be very misleading. I am in favour of transparency,
also towards members. Ever since the crisis first broke out,
I have consistently reported that there’s a theoretical chance
that we may have to cut pensions. Fortunately, we don’t
have to do that.’
In my opinion, one drawback of the various directives and guidelines is that regulations are transforming pension funds from long-term investors into short-term investors
6 KAS Selections • May 2012
Words from Wiesbaden
KAS BANK raises its profile in the German market
During March, KAS BANK Wiesbaden used two important
events within the financial industry to establish new
business relationships and to maintain current contacts.
On 14 and 15 March 2012, stakeholders in the market met
for the fifth Finanzplatztag in Frankfurt. Furthermore, on
the evening of 5 March 2012 the US rating agency
Morningstar and the German newspaper, the Handels
blatt, nominated the best fund managers and their
products at the Morningstar Fund Awards 2012.
KAS BANK Wiesbaden was present at both events with its
own stand.
Finanzplatztag
High calibre decision-makers from the management of credit
institutes and financial servicers met at the fifth Finanzplatz-
tag in the Frankfurt IHK (the Frankfurt chamber of industry
and commerce). This event takes place every year and is an
industry gathering for the financial sector and a central forum
focused on the German financial sector in Frankfurt. The
sponsors of the event, the WM group, publishers of the
Börsen-Zeitung, were thrilled with the record number of
visitors. Besides overriding focal points such as the future of
the financial market in Frankfurt, new regulations in the
industry or new trends in the markets, comprehensive
current analyses and developments as well as the
consequences of new legal frameworks on the financial
sector were addressed and discussed. Such a trade event
allows visitors to gain insight into new products and services
in the industry and offers an excellent opportunity to
exchange ideas.
There were also lectures held by notable speakers. A high -
light of the conference was the lecture given by the state
consumer protection minister, Ilse Aigner (CSU), who talked
about her favourite topic, investor protection. Ernst Padberg,
Publisher and Editor of the Börsen-Zeitung, warned in
contrast against exaggerating regulations. Indeed
continuous stringent regulation and assertive financial
supervision is to all intents and purposes a competitive
advantage to a financial market. In crisis times, however, it
should be executed with a sense of proportion.
Reto Francioni, Chairman of the German stock exchange,
announced that the German stock exchange would not
grow through mergers and take-overs, but more through
joint ventures and cooperation with other stock exchange
operators. In February, the EU Commission banned the
merger of the German stock exchange with NYSE Euronext
because it believed it would cause a monopoly within
derivatives trading. Moreover, Francioni announced that the
new trading system of the stock market, which is currently
being developed and which will offer considerable
turnaround times, will be introduced in 2013 under the name
of Xetra.
7KAS Selections • May 2012
Exhibition
The lectures and workshops were flanked by the exhibition
where the team from Wiesbaden presented KAS BANK at a
stand which was also close to our intended partner dwpbank.
Visitors to both the stands felt that the cooperation between
the two houses added spice to the securities business. This
spice came in the form of a promotional gift: at the
KAS BANK stand visitors received a pepper mill and could
then receive the matching salt shaker at the dwpbank stand.
The KAS BANK team was very satisfied with how the event
went. The exhibition fulfilled its purpose: many interesting,
serious and follow-up contacts were made and by the end of
the event the KAS BANK name was known to most visitors.
Morningstar Fund Awards
On 5 March, the German elite
of the fund industry met in
Frankfurt for the 18th
Morningstar Fund Awards in
order to nominate the best
fund providers. During the
evening, 14 asset managers
and individual funds were
noted for their excellence with
the “Oscar of the asset
management world”.
The approximately 200 guests agreed on one point, that
times remain hard for asset management. The debt crisis in
Europe is not yet over. Furthermore, private investors who
suffered painful losses must continue to take care and remain
cautious in their investment decisions.
This aside, the best from the industry came together in order
to celebrate their success from a difficult 2011. The jury
sums up this year as a year whereby the winners are those
providers who have concentrated on their core
competencies. By contrast, those who were less successful
were providers of passive, index-tracking funds, so-called
ETFs. Werner Hedrich, CEO of Morningstar, appealed to the
guests to take a new approach with respect to managed
funds or dividend strategies to counteract the negative
image of funds. The association of “funds are basically
stocks, with which I will lose my money” needs to be
drummed out of the minds of investors.
An entertaining interlude to the programme was the
contribution by Chin Meyer (cabaret artist for the finance
industry), who appeared as a Frankfurt tax inspector and
attacked the guests. Not even our managing director,
Jörg Sittmann, was safe in hands with him. Meyer called out
a number plate of a car to be confiscated; the car belonged
to Jörg Sittmann.
In pleasant surroundings, participants from the fund
management industry brought the evening to an end with
animated conversations.
Left Frank Vogel and right Jörg Sittmann, Managing
Directors KAS BANK Germany Branche
8 KAS Selections • May 2012
Laurens Vision
Laurens Vis,
Managing Director,
KAS BANK UK
People are living longer. A man
aged 65 today expects to live until
he is 86 and a woman until she is
89. And, as a result of this and low
fertility rates, in 2010 there were
3 supporting workers for every
pensioner and in 2050 there will
only be 2 workers for every
pensioner.
The outlook is a happy one for the
individual, but collectively not so
positive. Of the Defined Benefit Plans, 80 percent are now
revealing longevity-related funding voids. And in the UK, the
end is predicted for Final Salary schemes.
Time to change track. The happy individual is kindly asked to
leave the DB waiting room. 58 percent of UK’s DB Schemes
are now entirely closed to new members. 34 percent are
closed to further accruals and 18 percent are winding up
completely. The move to DC is picking up speed from
8 percent in 2001 to 39 percent in 2011. Goodbye
Collectivism, Solidarity and Participation. Welcome
Individualisation. And individualisation comes at a price.
Because ‘if a 1.5 percent fee is charged every year, both
during the period of saving and during the period of pension
payment, around 40 percent of the potential savings pot will
end up in fees’.
It seems that the Individual or Defined Contribution
arrangement has landed (from the United States) in the UK
first, before making its way across the English Channel.
Where, for example, only a mere 7 percent of Dutch Pension
savings have turned the DB corner.
In the United States, a 401 (k) retirement savings account
takes its name from subsection 410 (k) of the Internal
Revenue Code. 50 million American employees make their
regular contributions (which can be matched dollar for dollar
by their employers) into these accounts. Withdrawal of funds
is only permitted without penalties after the age of 59.5
years.
Having been introduced in the 1980s, 401k plans are now
starting to be drawn upon with 60 percent of American
households (in 2011). The outlook for them is dire. The plans
appear to fall short in general and account for less than
one-quarter of what is needed in that account to maintain
the standard of living in retirement. The reason for this?
A DB plan does not require the employee to do anything (but
given the opportunity to attend the General Membership
Meeting and keep an eye on Membership Notifications in the
ad-interim). The employee is taken care of by the nature of
the collective arrangement and solidarity between the
generations.
But with a DC arrangement, the ball is firmly in the
employee’s court and he/she has to decide what portion of
the income goes towards retirement. With a reduction of
taxable income as an incentive, no tax levies over earned
interest, a choice of mutual funds to invest in, an option to
buy company’ stock and the freedom to alternate
investment allocations at any time are visible and tempting
incentives.
But there appears to be a snag in the system, as employers
can only help their employees to save for their old age. Or
adapt the allocation of their savings relative to their changing
lifestyle as they grow older. Or to changing economic
circumstances for that matter. But they cannot force them to
make good use of the savings system.
A DB plan does not require the employee to do anything
9KAS Selections • May 2012
Recent retirement research has revealed that the adjustment
of asset allocation stalled completely over the crisis period.
The default for many investors was already to withdraw from
the market entirely in adverse circumstances, but most
‘401k’ers’ have done nothing at all. With over 40 percent
already allocated to equity specific funds, the result has
been a further ‘near’ paralysed drift into US Stocks.
However a silver lining is appearing, as the US Labor
department is stepping up its efforts to force administrators
and investment companies to disclose the cost of the 401k
plans. A wave of fee reductions and new investment choices
is expected. Under existing rules, fees are typically not
disclosed in the annual investor statements. And, as has
been stated above, a small fee change can make a big
investment return in the long run.
Employers are already changing their investment funds
line-up to lower fee funds. The majority of which have
resulted in a further increase in the proportion of passive
equity funds on the 401k account holder’s menu. Because
for some time to come, it seems they can ‘check out any
time they like, but they can never leave’.
This is quite unlike the prospects given to current DB
pension savers, when they are kindly asked to seek the risks
and returns of investments themselves. As happened 30
years ago in the land of the brave and the free.
Hence the quest for a ‘hybrid’ form, where there is a balance
between individual shoulders bearing the investment risk of
otherwise collectively-driven investments. Guided by
professionals on a transparent and competitive fee basis.
A fusion of the best parts of DB liability-driven structures and
DC life style arrangements? Because the good of the
individual is best achieved in what is good for the collective
as a whole?
The pension debate continues. Terms and conditions apply.
Please post your comments on: www.mallowstreet.com.
With a DC arrangement, the ball is firmly in the employee’s court
10 KAS Selections • May 2012
AIFMD/UCITS Congress
With roughly 250 investment funds as its clients,
KAS BANK is committed to being fully prepared in good
time for the implementation of the Alternative Investment
Fund Managers Directive (AIFM) and Undertaking for
Collective Investment in Transferable Securities (UCITS V).
In addition to introducing new supervisory and capital
requirements for investment funds and institutions, the
new regulations are bringing about a change in the role of
the custodian. However, much is still unclear regarding
the impact of the AIFMD and UCITS and the precise effect
of the European Directives at a national level. In order to
shed some light on this matter, KAS BANK organised a
wellattended AIFMD/UCITS congress specifically for
managers of investment funds on 16 February 2012. In
addition to the legal impact, the congress also examined
the practical structuring of an Investment Fund and the
changing role of the custodian.
The AIFMD strengthens the regulatory and supervisory
regime for investment funds. Many investment managers will
have to prepare to apply for a licence to perform their
management activities. It was originally proposed that only
managers of hedge funds and private equity funds would be
subject to stricter supervision. It is now clear that the scope
of the AIFMD is broader. It also applies to managers who
manage all types of investment funds that do not qualify as
an UCITS.*
Objectives
The objective of UCITS is to ensure that investors are better
protected against financial risks. By enforcing more rigorous
supervision, the European Commission aims to create a
framework within which it can exercise greater control over
the spread or enhancing of risks due to alternative
investment strategies. The objective of the AIFMD is to
* For more background information on the AIFMD and UCITS, please contact Floris Jan Zwijnen email: [email protected]
11KAS Selections • May 2012
create a comprehensive and secure framework for the
supervision and prudential oversight of AIFM in the EU.
Irma Dollen, senior policy advisor Financial Markets of the
Dutch Ministry of Finance, discussed the present position
regarding the implementation of the AIFMD. While the
European consultation round had yielded plenty of useful
input, the impact per country was still unclear. The
Netherlands, for example, prescribes rules with regard to
non-UCITS, but at the same time makes exceptions for
exempted institutions that have voluntarily placed
themselves under supervision. Pension funds may also be
exempted from the registration requirements for investment
fund managers. ‘Family offices’ in the Netherlands do not
qualify as an investment fund or institution. Institutions falling
under the so-called ‘light-touch regime’ (no licensing
requirement, although they do have to be registered with the
regulatory authority) may be subject to fewer charges, but
neither do they enjoy the benefits in the form of a European
passport.
Dollen concluded with a discussion of current developments.
The new European regulatory authority ESMA (European
Securities and Markets Authority) is still discussing the scope
of supervision of AIFs and UCITS. It is possible that
managers of investment funds for private investors may fall
under the light-touch regime, for example. The Ministry
remains in contact with the Dutch Authority for the Financial
Markets (AFM), concerning the precise interpretation of the
Directives.
Supervisory regimes
The second speaker introduced by chairman of day Jan
Willem van der Velden, lawyer at Keijser Van der Velden N.V.
was Kees Groffen, lawyer at De Brauw Blackstone
Westbroek. He began by outlining the main changes that will
take effect from July 2013. Groffen expects that the Directive
would have greater impact in the Netherlands than in other
countries. In future, managers of funds would also be
subject to the supervisory regime, for example. The
distinction between retail and institutional was set to change
and there would also be a mandatory custodian for public
limited companies (NVs) and private limited companies
(BVs). It would no longer be obligatory for the custodian to
be the legal owner of the investments, but he would be liable
for any losses incurred on financial instruments. An
investment firm, a credit institution as well as an UCITS
custodian can all act as a custodian. Private placement
would also be barred in future. Every foreign investment
institution with a European passport will be able to offer
funds in the Netherlands in the future.
An important difference between the UCITS and AIFMD
Directive is that the AIFMD does not impose any
requirements on the investments and does not stipulate a
prospectus or essential investors information. A UCITS, by
contrast, is bound by strict requirements with regard to the
type of investments, the spread between the investments
and a restriction on loan capital. The AIFMD also calls for a
custodian for all investment funds. The custodian does not
Irma Dollen, senior
policy advisor Financial
Markets, Ministry of
Finance
Jan-Willem van der
Velden, Lawyer Keijser
Van der Velden N.V.
Kees Groffen, Notary/
Lawyer, De Brauw
Blackstone Westbroek
N.V.
Karel Vogel, Director
Keijser Capital Asset
Management
Jaap Goossens,
Head of Legal Affairs
KAS BANK
12 KAS Selections • May 2012
acquire the legal ownership of the securities, but has a
purely supervisory role.
Manager
Groffen then discussed the activities of the manager in
detail. Just like the manager of a UCITS, the manager is
subject to regulations based on MiFID. These include a
far-reaching duty of disclosure towards the participants and
compliance with the best execution requirement. Conflicts of
interest must also be combated or controlled. Strict
requirements are also applied with regard to risk
management.
Tasks may only be outsourced in so far as they are tasks
that are inherent in the manager’s role and are essential for
the management. The manager himself remains responsible
at all times, and supervision must be safeguarded. ‘Brass-
plate companies’ are absolutely prohibited. Portfolio
management or risk management may only be outsourced
to institutions that are licensed or registered for asset
management subject to prudential supervision. The manager
may give instructions at any time. Where activities are
outsourced beyond the borders of the European Union,
there must be a collaborative relationship between the
relevant supervisory and regulatory authorities.
Managers in practice
Groffen’s legal assessment was given a practical elaboration
in the presentation by Karel Vogel, the manager on behalf of
Keijser Capital Asset Management of the Add Value Fund
N.V. The Add Value Fund was established as a mutual fund
under the exemption regulation. In 2010, the fund was
converted into an investment company listed on NYSE
Euronext. This then applied for and obtained UCITS status
from the AFM. With the introduction of the AIFMD, it was
uncertain whether the fund would need a new AIFMD licence
or whether the UCITS licence could be maintained*. Under
the AIFMD, a custodian must be appointed and specific
capital requirements are applicable, amongst other things.
These require the articles of association and the prospectus
to be amended. Another important change is the periodic
financial reporting requirement to the Dutch Central Bank,
DNB. The risk management policy has been tightened on a
number of important points. The investors must also be
provided with information on the risk profile, the risk
management systems and the leveraged financing
undertaken by the fund.
Tasks may only be outsourced in so far as they are tasks that are inherent in the manager’s role and are essential for the management
* Meanwhile Keijser Capital Asset Management, as a Fund manager, obtained a UCITS-licence
13KAS Selections • May 2012
Sikko van Katwijk, Managing Board KAS BANK
In all three presentations the speakers repeatedly
emphasised the changing role of the custodian under the
AIFMD. Managers of Investment Funds must now seek to
appoint a custodian for the safekeeping of the financial
instruments of the investment funds, something which they
are not always required to do at present. Furthermore, the
custodian will perform a greater supervisory and auditing
role in addition to his securities servicing duties.
The changing role of the custodian
Sikko van Katwijk (Managing Board KAS BANK), the final
speaker, showed two possible new structures for investment
funds with the corresponding role and duties of the ‘new
style’ of custodian. In the structure in which the investment
fund opts for a ‘depositary’ as the legal owner of the fund’s
assets, the depositary also carries out the supervisory tasks.
The custodian then restricts himself to ensuring the
safekeeping of the assets and the related activities. Van
Katwijk said that this structure was adequate for most of the
current market. In a structure with a ‘custodian role’, most of
the supervisory tasks will be performed by the custodian in
the role of depositary. In effect, the custodian is then
responsible for performing three tasks: the supervisory
function, the securities servicing function and the audit
function. Where the securities safekeeping duties are
outsourced the custodian is additionally assigned due
diligence responsibilities.
Panel discussion
During the panel discussion following the presentations it
became evident that investment funds are anxious for
greater clarity regarding the requirements with which they
would have to comply July 2013. The questions focused
largely on practical matters, such as liability and
transparency towards members. Many of the fund managers
present also felt that the AFM’s role was still insufficiently
clear. The general view was that the congress had
nonetheless shed light on a number of matters.
In view of the high attendance and the at times highly
specific questions, it is justifiable to conclude that the
congress in any event met its objective: to clarify the
developments surrounding the AIFMD and UCITS directives.
14 KAS Selections • May 2012
OTC Derivatives under EMIR
EMIR is the European Regulation published by the
European Commission aimed at introducing greater
transparency and better risk management to the ‘over the
counter’ (OTC) derivatives market. On 29 March 2012, the
European Parliament adopted EMIR, requiring the
European Securities and Markets Authority to publish the
technical standards and implementation date by 30
September 2012.
European Securities and Markets Authority
The European Securities and Markets Authority (ESMA) has
been given a key role in implementing and enforcing EMIR.
ESMA will be responsible for establishing what contracts will
be subject to the clearing obligation. It will also be
responsible for supervising trade repositories and will
co-supervise CCPs operating in the various member states.
Finally, it will be required to draft a large number of specific
and binding technical standards for the application of the
Regulation, for example with respect to the clearing
thresholds.
How will EMIR affect your business?
If you use derivatives contracts in any way, you will face the
post-trade requirements that EMIR brings. Very concretely,
you will need to install a version of MarkitServ (to confirm the
bilaterally executed transaction and automatically report it to a
relevant Trade Repository), appoint a Clearing Member (who
will help you bring the transaction into the Clearing House)
and decide how you are going to deal with the (intra!) daily
margin calls that the Clearing House will initiate.
Collateral Management
It is especially the latter issue that we would like to draw your
attention to. Contrary to the often weekly or monthly collateral
updates customary in the bilateral world, Clearing Houses
require intra-day and up-front margining; margin that needs to
be eligible and liquid and needs to arrive on time without the
flexibility you may be used to from your current counterparties.
We feel that this is the biggest challenge facing the industry
and this is where KAS BANK is placing its main focus: helping
our clients by completely taking over their collateral
management.
2012
2012 will be the year when all parties prepare for EMIR.
KAS BANK is ready for EMIR and ready to talk to you about
our solutions.
Rutger Abbink, Sales & Business Development KAS BANK
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Bilateral clearing Central clearing
15KAS Selections • May 2012
KAS BANK and Solvency II
Within KAS BANK, a crossbank Solvency II project team
is working intensively to prepare for the implementation of
the Solvency II European Directive for insurers. Besides
continually analysing the impact of Solvency II, the team is
closely tracking all the developments surrounding the
implementation of the Directive with effect from 1 January
2014. By engaging with our clients at an early stage, we
can ensure that they are prepared in good time for the
introduction and the reporting requirements associated
with Solvency II. At the moment, we are actively engaged
in making preparations for the socalled parallel run by
DNB in August 2012.
Reporting requirements
KAS BANK uses SimCorp’s industry-leading Dimension
investment management software package for its reporting.
External analysis has shown that KAS BANK is able to meet
all current reporting requirements. However, Solvency II will
introduce substantially more comprehensive and specific
reporting requirements on the asset side in particular than is
presently the case. As a result, the present dataset
combining data elements will have to be further expanded in
certain areas. For example, a number of valuations will be
added in order to comply fully with the Solvency II reporting
requirements. Having joined forces with a client and an
external party to address this issue at an early stage, this
process is now approaching its conclusion.
DNB parallel run
We are also currently making preparations for the so-called
parallel run by DNB in August 2012. The Dutch Central Bank
and banking regulatory authority, De Nederlandsche Bank
(DNB), is conducting this parallel run in order to be certain
that insurers can become ‘Solvency-proof’ well in advance
of the 1 January 2014 deadline. We can act as your partner
towards DNB prior to and during the parallel run.
Besides Solvency II, the AIFMD European Directive can also
have significance for insurers. Our staff will be pleased to
arrange a meeting to inform and advise you about the
consequences of both Directives for your organisation.
Sandra Könisser, Relationship Manager Fund and Insurers
Services
16 KAS Selections • May 2012
Kickback fees set to be banned: a recipe for greater transparency or for additional hidden costs?
In March 2011, Dutch Finance Minister Jan Kees de Jager
launched his ‘Financial Sector Action Plan’ in response to
the findings of the De Wit committee. In his letter to the
Lower House of the Dutch Parliament, Mr De Jager
presented a number of policy and legislative plans for
increasing transparency in the financial sector. One of the
measures proposed was a ban on ‘kickback fees’
amongst investment firms. According to Mr De Jager,
kickback fees are not compatible with the principle that
investment firms must use their best endeavours to look
after their clients’ interests, based on a commitment to
loyalty, fairness and professionalism. In line with the new
measures contained in MiFID II, a ban on these kickback
fees is intended to enforce greater transparency. It is
debatable whether this is actually the case, however. Will
abolition not in fact just lead to new hidden costs?
Investing in funds
Investing in unit trusts has become tremendously popular
amongst consultancy as well as investment management
clients during the past ten years. By investing more in unit
trusts and less in individual equities, it is possible to achieve
a greater spread of risks and avoid the high costs
associated with discretionary investment management. It
also facilitates the avoidance of even the appearance of
inside information and helps to limit the risk of ‘commision
chasing’ as far as possible.
The Netherlands Authority for the Financial Markets (AFM)
stipulates that various standards be observed when selling
and providing advice on investment funds. The purpose of
demanding this compliance is to ensure that advisers can
gain and retain the confidence of investors. An adviser must
make clear, for example, why a particular fund has been
chosen and how the costs of the selected or advised fund
compare with other funds or a far cheaper tracker. The
question may otherwise arise whether banks and investment
managers always recommend the best funds or simply the
funds on which they earn the biggest kickback.
Kickback fees
A kickback fee is the payment or compensation received by
a party or person for successfully introducing a (commercial)
lead to another party/person. In the specific case of
investment funds, it is the commission that a fund operator
pays to a bank or investment manager for referring clients to
its funds. In this situation, the client does not usually pay a
fee to the bank or investment manager, but rather a
management fee to the investment fund. This management
fee (together with a number of other expenses) is
incorporated in the daily ‘Net Asset Value’, or the quoted
price of the fund. Out of this management fee, commission
Mark Schilstra, Director Client Management KAS BANK
The purpose of abolishing kickback fees is to make investment firms act more in the interest of their clients
17KAS Selections • May 2012
is then paid (back) to the bank or investment manager in the
form of a kickback fee. This construction makes it difficult for
the client to see precisely what part of the ‘Net Asset Value’
consists of commission for the bank and what part
comprises commission for the fund operator.
Investment advice is normally provided free of charge, with
the associated costs being recovered indirectly through the
kickback fees. Since kickback fees can be as much as half
of the management fees, clients are still therefore paying
indirectly for the bank’s advice. These expenses are borne
collectively by all the investors in the fund. However, the
bank also receives a kickback fee if the client purchases
units in the fund on the stock exchange without being
provided with advice. So execution only investors also pay
towards advice that they themselves have never received.
A reduction of management fees combined with the
introduction of consultancy fees amongst banks would
therefore see execution only clients benefit most from the
removal of kickback fees.
A transparent model
Finance Minister Jan Kees de Jager sees his Action Plan as
a way of enforcing greater transparency in the costs of
investment funds. In a transparent model, clients pay their
bank or investment manager directly for giving good advice,
while they pay a management fee to the fund operator for
the fund’s performance. Since the fund operator no longer
pays any (hidden) kickback fees to the bank or investment
manager, the management fee can be significantly lower.
This represents a major change in the revenue model of
advisers (banks and investment managers) and fund
operators alike. Instead of receiving ‘guaranteed income’
from the kickback fee, they will now have to charge
transparent consultancy fees, while the investment funds will
have to lower their management fee, half of which is made
up of kickback fees in some cases, by the amount of this
kickback fee.
Hidden costs
That sounds like good news for investors. It is uncertain,
however, whether the fund operators will actually lower their
fees by the full amount of the kickback fees. Some funds
have already announced plans to increase their marketing
outlay since they fear that without the kickback fees, banks
may make less effort to sell their funds.
Transaction charges may also be raised. Given the intense
competition, this is unlikely to be reflected directly in the
fees. However, by completing more transactions in the
portfolios managed on behalf of the clients, they can also
boost their earnings on the transaction charges.
Finally, there appears to be a trend for banks to set up and
offer more self-managed funds due to other business
models and the increasing costs of discretionary investment
management. The bank then keeps the management fee for
itself.
Conclusion
The purpose of abolishing kickback fees is to make
investment firms act more in the interest of their clients.
Abolishing these fees will provide private investors with
greater transparency. Without kickback fees, investors have
greater safeguards for receiving independent advice. The
abolition of the kickback fees will nevertheless bring about a
significant change in the revenue model of banks,
investment managers and fund operators alike. Investors
must therefore be alert in the coming period to the different
fees and additional costs, whose only purpose is to mask
the modified revenue model. Transparency and openness
are key concepts in this respect. KAS BANK looks forward
to contributing to this development.
18 KAS Selections • May 2012
Global Custody Network News
Europe
Germany – Eurex announces launch of new derivative
contracts
Eurex added ten new Euro-denominated dividend
derivatives to its platform as from 2 March 2012. These
instruments cover dividends from selected sector indices out
of the EURO STOXX and STOXX Europe 600 indices,
including the banking, insurance, oil & gas,
telecommunications and utilities sectors. Eurex also offers a
designated Market-Making Scheme for these products. The
contracts are settled in cash and denominated in Euro, and
can be traded from 08:30–17:30 CET.
In cooperation with the Vienna Stock Exchange, Eurex
Exchange also offers derivative contracts on the Russian
RDX USD Index, as from 19 March 2012.
Greece – Further postponement Capital Gains Tax
The Greek Parliament approved the postponement of the
Capital Gains Tax (CGT). The tax on sales will continue to be
levied on all on
and off exchange
sales until the
implementation of
the Capital Gains
Tax on 1 January
2013.
netherlands – Introduction of AMX index futures and
options
As of 26 March
2012, it is possible
to trade AMX
index futures on
NYSE Liffe
Amsterdam.
Trading in AMX
index options
contracts was introduced on 10 April 2012.
austria – CCP.A plans to offer clearing services to entire
CEESEG region
CCP.A is committed to a strategy for offering clearing
services to the
exchanges in the
entire CEESEG
region: Vienna,
Prague, Ljubljana
and Budapest.
CCP.A also
announced that it
will be open for interoperability solutions with other CCPs.
Outside Europe
malaysia/honG KonG – Pilot platform for cross-border
investment and settlement of debt securities
Bank Negara Malaysia (BNM), the Hong Kong Monetary
Authority (HKMA) and Euroclear Bank jointly announced the
launch of a pilot platform for cross-border investment and
settlement of debt securities. Investors in Hong Kong and
Malaysia can buy and hold foreign debt securities and settle
cross-border transactions on a Delivery versus Payment
(DvP) basis, while local and international bond issuers can
19KAS Selections • May 2012
currencies. Listed companies can choose to have their
securities traded in any two different currencies.
south Korea – New tax for foreign investors holding
non-KRW bonds
Foreign investors holding non-KRW denominated bonds
issued by local residents in South Korea are now subject to
taxation. The new legislation applies to bonds issued after
1 January 2012. The tax exemption remains unchanged for
foreign currency denominated bonds that are issued outside
South Korea.
thailand – Proposal to remove dividend tax
The Thai Securities and Exchange Commission (SEC) has
proposed a plan to remove the dividend tax on equity. The
proposal would
abolish double
taxation; issuing
companies pay
corporate taxes and
investors are
currently subject to
a 10 percent withholding tax on dividend income.
The proposal is a step towards the integration of Asean
(Association of Southeast Asian Nations) capital markets,
which include Thailand, Philippines, Singapore, Malaysia,
Vietnam and Indonesia.
issue a wide range of debt securities. The platform is
operational from 30 March 2012 and enhances cross-border
debt securities settlement efficiency and strengthens the
capacity for debt securities issuance activities in the Asian
region.
sinGapore - SGX enhances global connectivity
Singapore Exchange (SGX) and Eurex are launching a
partnership to provide market participants with easy
connectivity to each other’s markets. The link is expected to
be effective in mid-2012 and should make it more easy and
cost effective to access both markets.
SGX also announced that NYSE Technologies is extending
its Secure Financial Transaction Infrastructure (SFTI) to the
SGX data centre. As a result, clients worldwide can
conveniently access SGX’s derivatives and securities
markets. Qualified investors in Singapore can also access
NYSE Liffe, the derivative exchange of NYSE Euronext.
Both alliances are part of the strategy of SGX to reach out to
global liquidity pools in major financial cities and establish
Singapore as the Asian gateway.
Furthermore, SGX introduced dual currency trading, which
enables listed securities to be traded in two different
20 KAS Selections • May 2012
Collateral and liquidity management in practice
Collateral management and liquidity management are an
important part of internal governance amongst Dutch
pension funds. New legislation and regulations, amongst
other things, are prompting more and more pension funds
to examine the possibility of outsourcing the collateral
management process. They are also in search of the
qualitative provision of liquidity. KAS Selections describes
a practical example.
Pension fund X has decided to outsource its asset
management activities. Within the pension fund’s mandate
the manager invests in a portfolio of US securities. He
acknowledges the existence of a US dollar exchange rate
risk due to the positions that have been taken. The
investment policy of pension fund X prescribes that the
exchange rate risk should be hedged.
The fund decides to negotiate an exchange rate hedge (OTC
derivative) in order to mitigate the risk. An inherent
requirement for contracting the derivative is the signing of an
ISDA agreement. A counterparty risk exists during the term
of the derivative. In order to mitigate this risk, the fund
decides also to arrange a CSA (Credit Support Annex) with
the counterparty, in addition to the ISDA.
The combined ISDA/CSA reduces the pension fund’s
counterparty risk. Only for it to be replaced with an
operational risk, however. The legal documents are only of
value to the fund if they are correctly executed. This
inevitably highlights the importance of having a well-
functioning collateral management function based on
durable systems and expert personnel. The employees
concerned must have a thorough knowledge and
understanding of the OTC derivatives that have been traded
and the underlying ISDA/CSA.
The day-to-day working practice within Collateral
Management (laid down in the CSA) consists of:
• Valuingpositions
• Margincalls
• Reconciliation
• Collateralsettlements
Traditionally, collateral management often has an operational
nature. Over the years the duties of a collateral manager
have become increasingly automated, with the emphasis on
increasingly mitigating the operational risks.
Like many other pension funds, pension fund X is under
pressure to reduce problems from the past concerning the
valuation of its derivatives portfolio. The fund has identified
(pro-active) automated reconciliation solutions as the way to
address this issue. The preference for automation combined
with the necessary specialism leads pension fund X to
explore possibilities for outsourcing the collateral
management responsibilities.
The liquidity risk, something which previously received little or no attention in the case of collateral management, is growing in importance
21KAS Selections • May 2012
Until recently, the emphasis within collateral management lay
on mitigating the associated operational risks. Following the
bankruptcy of Lehman Brothers in 2008, many parties
renegotiated the existing ISDA/CSAs, generally with the aim
of further mitigating the counterparty and market risk.
Possible adjustments include a more restrictive acceptance
of collateral, lower thresholds, higher haircuts, lower
minimum transfer amounts and more frequent margin calls,
for example. An inherent consequence of the more complex
CSAs was that collateral systems or collateral service
providers came under further pressure to execute these
procedures in an automated manner as far as possible.
In this example, pension fund X has a ‘long’ exposure to US
equities while it is required to pledge European government
bonds or cash as collateral. This is a liquidity risk as well as
implicitly an exchange rate risk for the fund. The liquidity risk,
something which previously received little or no attention in
the case of collateral management, is growing in importance.
This is because pension funds are increasingly exposed to
the risk that they possess inadequate qualitative liquidities to
exercise the collateral. On the one hand this leads to
restrictions in the investment possibilities available to a fund.
On the other hand, the collateral service provider is asked
(out of necessity) not just to perform its operational task as a
collateral manager but also to act as a provider of liquidity.
For pension fund X this would mean the collateral service
provider converting the US equities into European
government bonds for the pension fund.
In the light of new legislation and regulations (EMIR and
Dodd Frank for IRS and CDS OTC derivates, for example),
the market expects to see increased outsourcing of the
collateral management duties as well as a growing demand
for the qualitative provision of liquidity.
New clients
Netherlands
Goldring S.A.Order Execution, Back Office Services, Custody and Settlement
I.P. Intercapital Markets ADDerivatives Clearing
London Capital AssociatesCustody and Settlement
Nationale Nederlanden Financiele DienstenCustody and Settlement
Privium Fund ManagementOrder Execution and Settlement
Stichting Fondsenbeheer WaterbouwCustody, Settlement and Tax Reclaim
United Kingdom
JM Finn & CoOrder Execution and Derivatives Clearing
Linear Investments LimitedBack Office Services, Custody, Settlement and Model B
Wedbush SecuritiesBack Office Services, Clearing, Settlement and Securities Borrowing
Personnel notesClient Management1 March: Martine Sala, The Netherlands, Account Manager
Institutional Services
Sales & Business Development1 March: Edgar Kooter, Sales & Business Development
Institutional Services Netherlands
22 KAS Selections • May 2012
Tax on financial transactions
In times when the news is dominated by economic
stagnation and increasing government deficits, the
introduction of a tax on financial transactions is a popular
subject of discussion in Europe. Amongst the general
public, because a financial transaction tax is regarded as
a way of making the financial sector share in paying for
the consequences of the financial crisis. And amongst
politicians, because it is seen as an opportunity to
generate additional government revenue and to
discourage undesirable financial activities.
The financial transaction tax can be seen as a modern
version of the ‘Tobin tax’. In 1972, James Tobin, winner of
the 1981 Nobel Prize in economics, proposed a tax on
foreign currency transfers in order to combat speculation.
Although the idea behind the present plans is identical to
that put forward by Tobin, the scope of the financial
transaction tax is far broader. Whilst the Tobin tax was
restricted to foreign exchange trading, today’s transaction
tax targets the buying and selling of virtually all marketable
securities, while foreign currency transfers actually remain
exempt from the levy. Nonetheless, the intention of the
measure is identical to Tobin’s original idea: to combat
speculation and strengthen financial stability.
European Commission Proposal
At the end of 2011, the European Commission (EC)
presented a proposal for a tax on financial transactions in
the Member States of the European Union (EU). Under this
proposal, the tax would be levied on all transactions on
financial instruments between financial institutions when at
least one party to the transaction is located in the EU. The
exchange of shares and bonds would be taxed at a rate of
0.1 percent and derivative contracts at a rate of 0.01
percent. It is estimated this could raise approximately €57
billion every year.
The proposal is based on the concept of ‘making the
polluter pay’. The EC sees it as a way of ensuring that the
financial sector pays a share of the costs of the financial
crisis. Furthermore, the EC believes it will discourage risky
trading activities (such as speculation), since high-frequency
traders will be particularly heavily hit by a tax on financial
transactions.
Disagreement amongst European leaders
The EC’s proposal has led to disagreement amongst EU
Member States. Supporters stress that a financial
transaction tax will combat undesirable financial activities
and make financial institutions pay their fair share of the
consequences of the crisis. Opponents, however, argue
that financial institutions will merely charge the costs of the
tax to their clients. As a result, it is not the financial
institutions but rather their clients who will ultimately help
foot the bill for the consequences of the financial crisis.
Opponents also fear the possibility of decreasing liquidity in
the market and argue that activities will be moved to financial
centres outside the EU.
23KAS Selections • May 2012
UK policymakers, for example, fear that the City of London
will be disproportionately severely affected by the measure.
Whilst most of the revenue from the tax would come from
London, Europe’s largest financial centre, many banking
transactions would actually be lost to financial centres
outside the EU. Sweden has bad experiences with a tax on
financial transactions. The country abolished a tax on
financial transactions just a few years after it was introduced
because financial institutions were settling transactions
outside Sweden.
Dutch Finance Minister Jan Kees de Jager has also criticised
the EC’s proposal. He has referred to studies carried out by
DNB and CPB, the Netherlands Bureau for Economic Policy
Analysis, which indicate that the introduction of the tax
would have a negative effect on economic development and
make little contribution to the aim of attaining greater
financial market stability.
The former French president Nicolas Sarkozy, by contrast,
was a supporter of the tax. Unwilling to await the outcome of
the debate between European government leaders, he has
approved the introduction in France of a tax on the purchase
of French shares, high-frequency trading activities and the
purchase of unsecured Credit Default Swaps (CDS) from
1 August 2012.
The next steps
The financial transaction tax would require unanimous
acceptance of the proposal by the Member States in order
to be implemented across the EU. According to a British
government spokesman, the UK would only back a global
financial transaction tax. This is unlikely, however, since US
Treasury Secretary Timothy Geithner announced during the
G20 meeting in November 2011 that such a tax was out of
the question. In order to circumvent a British veto, an
alternative plan has been prepared under which the tax
would be restricted to the eurozone.
European leaders met in Copenhagen at the end of March in
order to break the impasse in the continuing discussions
surrounding the financial transaction tax. At this meeting,
Germany presented an alternative plan that proposed a tax
modelled on the UK’s ‘stamp duty’. Under this proposal,
only share transfers would be taxed. European leaders may
also choose to look at other ways of making financial
institutions pay their fair share. Mr De Jager, for example,
has already suggested examining a levy on the profits or on
the balance sheet size of financial institutions.
In order to accommodate the Member States who were less
than enthusiastic about the plans, European Commission
president Jose Manuel Barosso said that the revenues from
the financial transaction tax could be used to help reduce
the national contributions of EU Member States. An
argument that in times of increasing government deficits just
might be enough to convince doubting government leaders.
KAS BANK AMSTERDAMP.O. Box 240011000 DB AmsterdamThe Netherlands
Spuistraat 1721012 VT AmsterdamThe NetherlandsT: +31 20 557 59 11
KAS BANK LONDON5th Floor10 Old Broad StreetLondon EC2N 1AAUnited KingdomT: +44 20 7153 36 00
KAS BANK WIESBADENBiebricher Allee 265187 WiesbadenGermanyT: +49 611 1865 3800
www.kasbank.com
NETHERLANDS
NETHERLANDS
GERMANYUNITED KINGDOM