KAS SELECTIONS Volume 19, issue 2, May 2012
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 Selections 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 Contents: Interview with Pension Fund Xerox 3 KAS BANK raises its profile in the German market 6 Laurens Vision 8 AIFMD/UCITS Congress 10 OTC Derivatives under EMIR 14 KAS BANK and Solvency II 15 Kickback fees set to be banned: a recipe for greater transparency or for additional hidden costs? 16 Global Custody Network News 18 Collateral and liquidity management in practice 20 New clients 21 Personnel notes 21 Tax on financial transactions 22 Comments on this issue, suggestions for future articles and mailing list requests should be addressed to: Netherlands Clearing & Banking Services Associate director: jeroen.duijn@kasbank.com Fund & Insurers Services Associate director: sicco.plesman@kasbank.com Institutional Services Associate director: tamis.stuker@kasbank.com Sales & Business Development (S & BD) Head of S & BD: mark.van.weezenbeek@kasbank.com German Branch Managing Director: frank.vogel@kasbank.com KAS Investment Servicing GmbH CEO & Managing Director: joerg.sittmann@kasbank.com UK Branch Managing Director: laurens.vis@kasbank.com Translation: Wilkens c.s. Text editor: Robbert Veltman Editor: Carla Boogers KAS BANK N.V. Marketing & Commercial Development P.O. Box 24001, 1000 DB Amsterdam The Netherlands +31 20 557 5812 carla.boogers@kasbank.com Graphic Design: Ebbenhorst Design, De Meern Print: KAS BANK, Document & Systems Services
Editorial 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 Katwijk Managing Board of KAS BANK
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.
Niels van Heesen, director of Stichting Pensioenfonds Xerox
What have been the most important
people, purchasing systems in order to be able to administer
developments within the pension fund since
the scheme, defining and structuring processes - it was
the merger?
quite a job sorting everything out. Everything had to be up
‘Before the merger, Xerox Manufacturing and Xerox
and running within just a few months.’
Nederland each had their own pension scheme and their own board. Xerox Manufacturing did not have its own
Has the introduction of the Financial
pension fund, but was directly insured. Xerox Nederland, by
Assessment Framework (FAF) also had an
contrast, did have its own pension fund but was fully
impact on staffing levels within pension fund
reinsured at that time. Nevertheless, both companies had
administration?
the same pension contract. Since 1 January 2000, we have
‘We were responsible for the pension administration of
administered these combined pension schemes ourselves.
several funds: two pension funds providing for the over 65s,
In 2006, we also took over the accounting of these schemes
an early retirement pension fund, an executive pension fund
and in 2009 we incorporated the pension scheme of
and a flexible pension fund. Each fund had to be audited
Veerman B.V.
and subjected to actuarial certification separately. And each
Administering a single pension scheme and carrying out the
fund had to produce an annual report. That took up a lot of
accounting duties ourselves have had most impact. Hiring
our time. Switching to a single scheme simplified all that and had the added bonus of saving work. As a result we didn’t
In 2005 we launched a website complete with pension planner. That’s meant that we now receive considerably fewer questions
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
KAS Selections • May 2012
3
choose to retire at the age of 62, for example, or to see what
manager includes drawing up a longlist of asset managers
the consequences are of a high/low structure. Members who
based on several selection criteria. The investment committee
contact us with a question are now better informed in
decides which names appear on the shortlist. Assisted by the
advance. Thanks to these measures, we have sufficient
external adviser, I then hold meetings with the selected asset
manpower to ensure we can meet the stricter requirements
managers. The investment committee eventually sends a
of De Nederlandsche Bank (DNB).’
well-substantiated recommendation to the trustees.’
Which market developments have been
How is the board composed in terms of
important for the pension fund?
knowledge and expertise?
‘The introduction of the FAF and the switch from the fixed
‘We examine the collective expertise and whether it is
notional interest rate to a variable interest rate have had a
covered within the expertise matrix. This ensures that the
significant impact. The interest rate issue is particularly difficult
board has sufficient expertise to judge whether the
to communicate well to members. Try explaining that in spite
investment committee’s proposals have merit. The ALM
of a good return on investments, you might nevertheless be
study is discussed by the entire board. However, the ALM
compelled to cut pensions. It is a shame that DNB’s policy is
study only examines the likelihood of underfunding, an
one of retrospection. You would expect a regulatory authority
acceptable premium and the strategic mix. We didn’t think
to think ahead about crises. Now we have to submit a crisis
this went far enough. In the interest of good decision-making,
plan by 1 May 2012, for example, whereas that should really
we would like the board to base its deliberations on our risk
have been done years ago.
exposure. Risk management as a whole consists of taking
In my opinion, one drawback of the various directives and
into account risks and risk budgeting. This formed the basis
guidelines is that regulations are transforming pension funds
for our discussions with KAS BANK and led us to develop our
from long-term investors into short-term investors. In the final
risk budgeting commitment together with you. Looking at risk
analysis, we are long-term investors.
monitoring, it seems that a sizeable part of the risk budget is
It’s time we simplified pension arrangements in the
engulved by ranges. In itself that’s nothing to be concerned
Netherlands. The pension agreement reached between the
about, but it’s still important to be aware of the risks you are
government, employers’ organisations and trade unions on
exposed to and which mandates you give to an asset
the future of the pension system in the Netherlands doesn’t
manager. If we decide to change track, by placing greater
help much in this regard. On the contrary, it looks as if
focus on emerging markets, for example, then risk budgeting
everything will become even more complex and difficult to
allows you to examine the consequences of that change in
administer.’
strategy.’
How is the investment process structured in the case of Pensioenfonds Xerox?
CV Niels van Heesen
‘Once every three years, we commission an ALM study by an
Niels van Heesen joined
independent actuary firm. This gives a pointer to the possible
Pensioenfonds Xerox (Xerox
asset mix. The previous ALM study, for example, indicated
Pension Fund) on 1 January
that commodities might have significant added value for us.
2000. He has always worked in
These results then form the basis for further decision-making
the pension industry. He started
by the investment committee, which I chair. The investment
at Consultas, then a pension
committee consists of two other board members and an
consultancy owned by ABN Amro, before moving to the
independent adviser. Besides being a member of the
Wolters Samson Group pension fund, then the TDV
investment committee, the external adviser tracks all available
pension fund, and then Watson Wyatt where he set up a
investment products and asset managers in the market on
consultancy practice to support small pension funds.
our behalf. His role in relation to the selection of a new asset
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KAS Selections • May 2012
Do you also have a training/development plan
Why did you decide to develop risk budgeting
for the board?
together with KAS BANK?
‘Yes, we have a training and development plan for each new
‘As our custodian, KAS BANK has all the necessary
member of the board. New candidates can’t ‘simply’ join the
information available. That is an extremely valuable
board, but are required first to complete a general training
database, because you can do so many things with that
programme. A prospective member’s candidacy is not
data. Risk management is just one of them. We could go to
proposed to DNB until he/she is considered to have
another party, but then we would have to supply them with
sufficient expertise. Following the implementation of risk
lots and lots of information. We prefer not to do that. That is
budgeting, the board attended a special study day on this
why it was our first choice to assign the risk budgeting to
topic. The board now has to embrace a different way of
you.’
thinking. The risk budget allows you to determine immediately what the impact of a particular addition will be
Do you see other possibilities for further
on the budget. Will it be increased or decreased? Is my risk
improving the risk process?
exposure heightened? Is that what I want? Maybe not,
‘The evaluation of the crisis has shown us that we have
meaning that something else has to be deducted or taken
mainly been affected by the fall in interest rates; that has
from elsewhere so that it falls within the constraints of the
been our biggest problem. No one would have expected
risk budget again.’
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 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 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.
How is your risk policy defined?
Investment cost transparency is also important, of course.
‘Two years ago, all the risks were surveyed by two different
We used to do business with a party that was very active in
working groups; the financial risks by the investment
fixed-income securities and who churned the portfolio three
committee and the non-financial risks by the second working
times. You might then wonder whether the associated
group. Once all the risks had been identified and listed, we
transaction costs are all necessary, and whether the costs
examined the impact of those risks on the fund. We repeat
outweigh the benefits. Obviously, you have to be careful not
this process on a regular basis. Of course, there is a danger
to compare them like for like. After all, it’s difficult to
that you only examine risks you are already aware of. That is
compare the costs of different pension funds. Those costs
also the problem with the present crisis. We were not in a
depend on whether you pursue an active or passive
position to see it coming. In the past, for example, less
investment strategy, whether you work for one or more
attention was paid to the counterparty risk. It was also a
employers, or what your service level is, for example. So you
commonly held belief in the market that cash was
can’t just say these are the costs per member, and then
tremendously safe. But not everyone knew that those cash
compare them with another pension fund. Any subsequent
funds were being reinvested in mortgages, thus constituting
cost lists that you draw up aimed at comparing pension
a risk again. That explains why DNB has made the
funds can be very misleading. I am in favour of transparency,
mandatory focus on risk recognition a primary issue. Many
also towards members. Ever since the crisis first broke out,
different parties are now engaged in this, but each time it
I have consistently reported that there’s a theoretical chance
comes down to looking back at past events. So even now
that we may have to cut pensions. Fortunately, we don’t
we can’t guarantee that new risks won’t occur in the future.’
have to do that.’
KAS Selections • May 2012
5
Words from Wiesbaden
KAS BANK raises its profile in the German market During March, KAS BANK Wiesbaden used two important
allows visitors to gain insight into new products and services
events within the financial industry to establish new
in the industry and offers an excellent opportunity to
business relationships and to maintain current contacts.
exchange ideas.
On 14 and 15 March 2012, stakeholders in the market met for the fifth Finanzplatztag in Frankfurt. Furthermore, on
There were also lectures held by notable speakers. A high
the evening of 5 March 2012 the US rating agency
light of the conference was the lecture given by the state
Morningstar and the German newspaper, the Handels
consumer protection minister, Ilse Aigner (CSU), who talked
blatt, nominated the best fund managers and their
about her favourite topic, investor protection. Ernst Padberg,
products at the Morningstar Fund Awards 2012.
Publisher and Editor of the Börsen-Zeitung, warned in
KAS BANK Wiesbaden was present at both events with its
contrast against exaggerating regulations. Indeed
own stand.
continuous stringent regulation and assertive financial supervision is to all intents and purposes a competitive
Finanzplatztag
advantage to a financial market. In crisis times, however, it
High calibre decision-makers from the management of credit
should be executed with a sense of proportion.
institutes and financial servicers met at the fifth Finanzplatz tag in the Frankfurt IHK (the Frankfurt chamber of industry
Reto Francioni, Chairman of the German stock exchange,
and commerce). This event takes place every year and is an
announced that the German stock exchange would not
industry gathering for the financial sector and a central forum
grow through mergers and take-overs, but more through
focused on the German financial sector in Frankfurt. The
joint ventures and cooperation with other stock exchange
sponsors of the event, the WM group, publishers of the
operators. In February, the EU Commission banned the
Börsen-Zeitung, were thrilled with the record number of
merger of the German stock exchange with NYSE Euronext
visitors. Besides overriding focal points such as the future of
because it believed it would cause a monopoly within
the financial market in Frankfurt, new regulations in the
derivatives trading. Moreover, Francioni announced that the
industry or new trends in the markets, comprehensive
new trading system of the stock market, which is currently
current analyses and developments as well as the
being developed and which will offer considerable
consequences of new legal frameworks on the financial
turnaround times, will be introduced in 2013 under the name
sector were addressed and discussed. Such a trade event
of Xetra.
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KAS Selections • May 2012
Left Frank Vogel and right Jörg Sittmann, Managing Exhibition
Directors KAS BANK Germany Branche
The lectures and workshops were flanked by the exhibition where the team from Wiesbaden presented KAS BANK at a
This aside, the best from the industry came together in order
stand which was also close to our intended partner dwpbank.
to celebrate their success from a difficult 2011. The jury
Visitors to both the stands felt that the cooperation between
sums up this year as a year whereby the winners are those
the two houses added spice to the securities business. This
providers who have concentrated on their core
spice came in the form of a promotional gift: at the
competencies. By contrast, those who were less successful
KAS BANK stand visitors received a pepper mill and could
were providers of passive, index-tracking funds, so-called
then receive the matching salt shaker at the dwpbank stand.
ETFs. Werner Hedrich, CEO of Morningstar, appealed to the
The KAS BANK team was very satisfied with how the event
guests to take a new approach with respect to managed
went. The exhibition fulfilled its purpose: many interesting,
funds or dividend strategies to counteract the negative
serious and follow-up contacts were made and by the end of
image of funds. The association of “funds are basically
the event the KAS BANK name was known to most visitors.
stocks, with which I will lose my money” needs to be drummed out of the minds of investors.
Morningstar Fund Awards On 5 March, the German elite
An entertaining interlude to the programme was the
of the fund industry met in
contribution by Chin Meyer (cabaret artist for the finance
Frankfurt for the 18th
industry), who appeared as a Frankfurt tax inspector and
Morningstar Fund Awards in
attacked the guests. Not even our managing director,
order to nominate the best
Jörg Sittmann, was safe in hands with him. Meyer called out
fund providers. During the
a number plate of a car to be confiscated; the car belonged
evening, 14 asset managers
to Jörg Sittmann.
and individual funds were noted for their excellence with
In pleasant surroundings, participants from the fund
the “Oscar of the asset
management industry brought the evening to an end with
management world”.
animated conversations.
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.
KAS Selections • May 2012
7
Laurens Vision People are living longer. A man
In the United States, a 401 (k) retirement savings account
aged 65 today expects to live until
takes its name from subsection 410 (k) of the Internal
he is 86 and a woman until she is
Revenue Code. 50 million American employees make their
89. And, as a result of this and low
regular contributions (which can be matched dollar for dollar
fertility rates, in 2010 there were
by their employers) into these accounts. Withdrawal of funds
3 supporting workers for every
is only permitted without penalties after the age of 59.5
pensioner and in 2050 there will
years.
only be 2 workers for every pensioner.
Laurens Vis,
starting to be drawn upon with 60 percent of American
Managing Director, KAS BANK UK
Having been introduced in the 1980s, 401k plans are now
The outlook is a happy one for the
households (in 2011). The outlook for them is dire. The plans
individual, but collectively not so
appear to fall short in general and account for less than
positive. Of the Defined Benefit Plans, 80 percent are now
one-quarter of what is needed in that account to maintain
revealing longevity-related funding voids. And in the UK, the
the standard of living in retirement. The reason for this?
end is predicted for Final Salary schemes. A DB plan does not require the employee to do anything (but Time to change track. The happy individual is kindly asked to
given the opportunity to attend the General Membership
leave the DB waiting room. 58 percent of UK’s DB Schemes
Meeting and keep an eye on Membership Notifications in the
are now entirely closed to new members. 34 percent are
ad-interim). The employee is taken care of by the nature of
closed to further accruals and 18 percent are winding up
the collective arrangement and solidarity between the
completely. The move to DC is picking up speed from
generations.
8 percent in 2001 to 39 percent in 2011. Goodbye Collectivism, Solidarity and Participation. Welcome
But with a DC arrangement, the ball is firmly in the
Individualisation. And individualisation comes at a price.
employee’s court and he/she has to decide what portion of
Because ‘if a 1.5 percent fee is charged every year, both
the income goes towards retirement. With a reduction of
during the period of saving and during the period of pension
taxable income as an incentive, no tax levies over earned
payment, around 40 percent of the potential savings pot will
interest, a choice of mutual funds to invest in, an option to
end up in fees’.
buy company’ stock and the freedom to alternate investment allocations at any time are visible and tempting
A DB plan does not require the employee to do anything
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
It seems that the Individual or Defined Contribution
adapt the allocation of their savings relative to their changing
arrangement has landed (from the United States) in the UK
lifestyle as they grow older. Or to changing economic
first, before making its way across the English Channel.
circumstances for that matter. But they cannot force them to
Where, for example, only a mere 7 percent of Dutch Pension
make good use of the savings system.
savings have turned the DB corner.
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KAS Selections • May 2012
Recent retirement research has revealed that the adjustment
A fusion of the best parts of DB liability-driven structures and
of asset allocation stalled completely over the crisis period.
DC life style arrangements? Because the good of the
The default for many investors was already to withdraw from
individual is best achieved in what is good for the collective
the market entirely in adverse circumstances, but most
as a whole?
‘401k’ers’ have done nothing at all. With over 40 percent already allocated to equity specific funds, the result has
The pension debate continues. Terms and conditions apply.
been a further ‘near’ paralysed drift into US Stocks.
Please post your comments on: www.mallowstreet.com.
With a DC arrangement, the ball is firmly in the employee’s court 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.
KAS Selections • May 2012
9
AIFMD/UCITS Congress With roughly 250 investment funds as its clients,
The AIFMD strengthens the regulatory and supervisory
KASÂ BANK is committed to being fully prepared in good
regime for investment funds. Many investment managers will
time for the implementation of the Alternative Investment
have to prepare to apply for a licence to perform their
Fund Managers Directive (AIFM) and Undertaking for
management activities. It was originally proposed that only
Collective Investment in Transferable Securities (UCITS V).
managers of hedge funds and private equity funds would be
In addition to introducing new supervisory and capital
subject to stricter supervision. It is now clear that the scope
requirements for investment funds and institutions, the
of the AIFMD is broader. It also applies to managers who
new regulations are bringing about a change in the role of
manage all types of investment funds that do not qualify as
the custodian. However, much is still unclear regarding
an UCITS.*
the impact of the AIFMD and UCITS and the precise effect of the European Directives at a national level. In order to
Objectives
shed some light on this matter, KAS BANK organised a
The objective of UCITS is to ensure that investors are better
well-attended AIFMD/UCITS congress specifically for
protected against financial risks. By enforcing more rigorous
managers of investment funds on 16 February 2012. In
supervision, the European Commission aims to create a
addition to the legal impact, the congress also examined
framework within which it can exercise greater control over
the practical structuring of an Investment Fund and the
the spread or enhancing of risks due to alternative
changing role of the custodian.
investment strategies. The objective of the AIFMD is to
*
For more background information on the AIFMD and UCITS, please contact Floris Jan Zwijnen email: floris.jan.zwijnen@kasbank.com
10
KAS Selections • May 2012
Irma Dollen, senior
Jan-Willem van der
Kees Groffen, Notary/
Karel Vogel, Director
Jaap Goossens,
policy advisor Financial
Velden, Lawyer Keijser
Lawyer, De Brauw
Keijser Capital Asset
Head of Legal Affairs
Markets, Ministry of
Van der Velden N.V.
Blackstone Westbroek
Management
KAS BANK
Finance
N.V.
create a comprehensive and secure framework for the
Supervisory regimes
supervision and prudential oversight of AIFM in the EU.
The second speaker introduced by chairman of day Jan Willem van der Velden, lawyer at Keijser Van der Velden N.V.
Irma Dollen, senior policy advisor Financial Markets of the
was Kees Groffen, lawyer at De Brauw Blackstone
Dutch Ministry of Finance, discussed the present position
Westbroek. He began by outlining the main changes that will
regarding the implementation of the AIFMD. While the
take effect from July 2013. Groffen expects that the Directive
European consultation round had yielded plenty of useful
would have greater impact in the Netherlands than in other
input, the impact per country was still unclear. The
countries. In future, managers of funds would also be
Netherlands, for example, prescribes rules with regard to
subject to the supervisory regime, for example. The
non-UCITS, but at the same time makes exceptions for
distinction between retail and institutional was set to change
exempted institutions that have voluntarily placed
and there would also be a mandatory custodian for public
themselves under supervision. Pension funds may also be
limited companies (NVs) and private limited companies
exempted from the registration requirements for investment
(BVs). It would no longer be obligatory for the custodian to
fund managers. ‘Family offices’ in the Netherlands do not
be the legal owner of the investments, but he would be liable
qualify as an investment fund or institution. Institutions falling
for any losses incurred on financial instruments. An
under the so-called ‘light-touch regime’ (no licensing
investment firm, a credit institution as well as an UCITS
requirement, although they do have to be registered with the
custodian can all act as a custodian. Private placement
regulatory authority) may be subject to fewer charges, but
would also be barred in future. Every foreign investment
neither do they enjoy the benefits in the form of a European
institution with a European passport will be able to offer
passport.
funds in the Netherlands in the future.
Dollen concluded with a discussion of current developments. The new European regulatory authority ESMA (European
An important difference between the UCITS and AIFMD
Securities and Markets Authority) is still discussing the scope
Directive is that the AIFMD does not impose any
of supervision of AIFs and UCITS. It is possible that
requirements on the investments and does not stipulate a
managers of investment funds for private investors may fall
prospectus or essential investors information. A UCITS, by
under the light-touch regime, for example. The Ministry
contrast, is bound by strict requirements with regard to the
remains in contact with the Dutch Authority for the Financial
type of investments, the spread between the investments
Markets (AFM), concerning the precise interpretation of the
and a restriction on loan capital. The AIFMD also calls for a
Directives.
custodian for all investment funds. The custodian does not
KAS Selections • May 2012
11
acquire the legal ownership of the securities, but has a
may give instructions at any time. Where activities are
purely supervisory role.
outsourced beyond the borders of the European Union, there must be a collaborative relationship between the
Manager
relevant supervisory and regulatory authorities.
Groffen then discussed the activities of the manager in detail. Just like the manager of a UCITS, the manager is
Managers in practice
subject to regulations based on MiFID. These include a
Groffen’s legal assessment was given a practical elaboration
far-reaching duty of disclosure towards the participants and
in the presentation by Karel Vogel, the manager on behalf of
compliance with the best execution requirement. Conflicts of
Keijser Capital Asset Management of the Add Value Fund
interest must also be combated or controlled. Strict
N.V. The Add Value Fund was established as a mutual fund
requirements are also applied with regard to risk
under the exemption regulation. In 2010, the fund was
management.
converted into an investment company listed on NYSE Euronext. This then applied for and obtained UCITS status
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
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.
Tasks may only be outsourced in so far as they are tasks
These require the articles of association and the prospectus
that are inherent in the manager’s role and are essential for
to be amended. Another important change is the periodic
the management. The manager himself remains responsible
financial reporting requirement to the Dutch Central Bank,
at all times, and supervision must be safeguarded. ‘Brass-
DNB. The risk management policy has been tightened on a
plate companies’ are absolutely prohibited. Portfolio
number of important points. The investors must also be
management or risk management may only be outsourced
provided with information on the risk profile, the risk
to institutions that are licensed or registered for asset
management systems and the leveraged financing
management subject to prudential supervision. The manager
undertaken by the fund.
* Meanwhile Keijser Capital Asset Management, as a Fund manager, obtained a UCITS-licence
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KAS Selections • May 2012
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.
Sikko van Katwijk, Managing Board KAS BANK
The custodian then restricts himself to ensuring the safekeeping of the assets and the related activities. Van
became evident that investment funds are anxious for
Katwijk said that this structure was adequate for most of the
greater clarity regarding the requirements with which they
current market. In a structure with a ‘custodian role’, most of
would have to comply July 2013. The questions focused
the supervisory tasks will be performed by the custodian in
largely on practical matters, such as liability and
the role of depositary. In effect, the custodian is then
transparency towards members. Many of the fund managers
responsible for performing three tasks: the supervisory
present also felt that the AFM’s role was still insufficiently
function, the securities servicing function and the audit
clear. The general view was that the congress had
function. Where the securities safekeeping duties are
nonetheless shed light on a number of matters.
outsourced the custodian is additionally assigned due diligence responsibilities.
In view of the high attendance and the at times highly specific questions, it is justifiable to conclude that the
Panel discussion
congress in any event met its objective: to clarify the
During the panel discussion following the presentations it
developments surrounding the AIFMD and UCITS directives.
KAS Selections • May 2012
13
OTC Derivatives under EMIR 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
Rutger Abbink, Sales & Business Development KAS BANK
margin calls that the Clearing House will initiate. EMIR is the European Regulation published by the European Commission aimed at introducing greater
Collateral Management
transparency and better risk management to the ‘over the
It is especially the latter issue that we would like to draw your
counter’ (OTC) derivatives market. On 29 March 2012, the
attention to. Contrary to the often weekly or monthly collateral
European Parliament adopted EMIR, requiring the
updates customary in the bilateral world, Clearing Houses
European Securities and Markets Authority to publish the
require intra-day and up-front margining; margin that needs to
technical standards and implementation date by 30
be eligible and liquid and needs to arrive on time without the
September 2012.
flexibility you may be used to from your current counterparties.
European Securities and Markets Authority
We feel that this is the biggest challenge facing the industry
The European Securities and Markets Authority (ESMA) has
and this is where KAS BANK is placing its main focus: helping
been given a key role in implementing and enforcing EMIR.
our clients by completely taking over their collateral
ESMA will be responsible for establishing what contracts will
management.
be subject to the clearing obligation. It will also be responsible for supervising trade repositories and will
2012
co-supervise CCPs operating in the various member states.
2012 will be the year when all parties prepare for EMIR.
Finally, it will be required to draft a large number of specific
KAS BANK is ready for EMIR and ready to talk to you about
and binding technical standards for the application of the
our solutions.
Central clearing
Bilateral clearing G K
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CCP
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End-user
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Small financial institution
KAS Selections • May 2012
Large financial institution
KAS BANK and Solvency II 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 Sandra Könisser, Relationship Manager Fund and Insurers
have significance for insurers. Our staff will be pleased to
Services
arrange a meeting to inform and advise you about the consequences of both Directives for your organisation.
Within KAS BANK, a cross-bank 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 so-called 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.
KAS Selections • May 2012
15
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
Mark Schilstra, Director Client Management KAS BANK
debatable whether this is actually the case, however. Will abolition not in fact just lead to new hidden costs?
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
The purpose of abolishing kickback fees is to make investment firms act more in the interest of their clients
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.
Investing in funds Investing in unit trusts has become tremendously popular
Kickback fees
amongst consultancy as well as investment management
A kickback fee is the payment or compensation received by
clients during the past ten years. By investing more in unit
a party or person for successfully introducing a (commercial)
trusts and less in individual equities, it is possible to achieve
lead to another party/person. In the specific case of
a greater spread of risks and avoid the high costs
investment funds, it is the commission that a fund operator
associated with discretionary investment management. It
pays to a bank or investment manager for referring clients to
also facilitates the avoidance of even the appearance of
its funds. In this situation, the client does not usually pay a
inside information and helps to limit the risk of ‘commision
fee to the bank or investment manager, but rather a
chasing’ as far as possible.
management fee to the investment fund. This management
The Netherlands Authority for the Financial Markets (AFM)
fee (together with a number of other expenses) is
stipulates that various standards be observed when selling
incorporated in the daily ‘Net Asset Value’, or the quoted
and providing advice on investment funds. The purpose of
price of the fund. Out of this management fee, commission
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KAS Selections • May 2012
is then paid (back) to the bank or investment manager in the
outlay since they fear that without the kickback fees, banks
form of a kickback fee. This construction makes it difficult for
may make less effort to sell their funds.
the client to see precisely what part of the ‘Net Asset Value’
Transaction charges may also be raised. Given the intense
consists of commission for the bank and what part
competition, this is unlikely to be reflected directly in the
comprises commission for the fund operator.
fees. However, by completing more transactions in the portfolios managed on behalf of the clients, they can also
Investment advice is normally provided free of charge, with
boost their earnings on the transaction charges.
the associated costs being recovered indirectly through the
Finally, there appears to be a trend for banks to set up and
kickback fees. Since kickback fees can be as much as half
offer more self-managed funds due to other business
of the management fees, clients are still therefore paying
models and the increasing costs of discretionary investment
indirectly for the bank’s advice. These expenses are borne
management. The bank then keeps the management fee for
collectively by all the investors in the fund. However, the
itself.
bank also receives a kickback fee if the client purchases units in the fund on the stock exchange without being
Conclusion
provided with advice. So execution only investors also pay
The purpose of abolishing kickback fees is to make
towards advice that they themselves have never received.
investment firms act more in the interest of their clients.
A reduction of management fees combined with the
Abolishing these fees will provide private investors with
introduction of consultancy fees amongst banks would
greater transparency. Without kickback fees, investors have
therefore see execution only clients benefit most from the
greater safeguards for receiving independent advice. The
removal of kickback fees.
abolition of the kickback fees will nevertheless bring about a significant change in the revenue model of banks,
A transparent model
investment managers and fund operators alike. Investors
Finance Minister Jan Kees de Jager sees his Action Plan as
must therefore be alert in the coming period to the different
a way of enforcing greater transparency in the costs of
fees and additional costs, whose only purpose is to mask
investment funds. In a transparent model, clients pay their
the modified revenue model. Transparency and openness
bank or investment manager directly for giving good advice,
are key concepts in this respect. KAS BANK looks forward
while they pay a management fee to the fund operator for
to contributing to this development.
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 KAS Selections • May 2012
17
Global Custody Network News Europe Germany – Eurex announces launch of new derivative
Netherlands – Introduction of AMX index futures and
contracts
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.
Eurex added ten new Euro-denominated dividend
Austria – CCP.A plans to offer clearing services to entire
derivatives to its platform as from 2 March 2012. These
CEESEG region
instruments cover dividends from selected sector indices out
CCP.A is committed to a strategy for offering clearing
of the EURO STOXX and STOXX Europe 600 indices,
services to the
including the banking, insurance, oil & gas,
exchanges in the
telecommunications and utilities sectors. Eurex also offers a
entire CEESEG
designated Market-Making Scheme for these products. The
region: Vienna,
contracts are settled in cash and denominated in Euro, and
Prague, Ljubljana
can be traded from 08:30–17:30 CET.
and Budapest.
In cooperation with the Vienna Stock Exchange, Eurex
CCP.A also
Exchange also offers derivative contracts on the Russian
announced that it
RDX USD Index, as from 19 March 2012.
will be open for interoperability solutions with other CCPs.
Greece – Further postponement Capital Gains Tax
Outside Europe
The Greek Parliament approved the postponement of the Capital Gains Tax (CGT). The tax on sales will continue to be
Malaysia/Hong Kong – Pilot platform for cross-border
levied on all on
investment and settlement of debt securities
and off exchange
Bank Negara Malaysia (BNM), the Hong Kong Monetary
sales until the
Authority (HKMA) and Euroclear Bank jointly announced the
implementation of
launch of a pilot platform for cross-border investment and
the Capital Gains
settlement of debt securities. Investors in Hong Kong and
Tax on 1 January
Malaysia can buy and hold foreign debt securities and settle
2013.
cross-border transactions on a Delivery versus Payment (DvP) basis, while local and international bond issuers can
18
KAS 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 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
1 January 2012. The tax exemption remains unchanged for
cost effective to access both markets.
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 SGX also announced that NYSE Technologies is extending
currently subject to
its Secure Financial Transaction Infrastructure (SFTI) to the
a 10 percent withholding tax on dividend income.
SGX data centre. As a result, clients worldwide can
The proposal is a step towards the integration of Asean
conveniently access SGX’s derivatives and securities
(Association of Southeast Asian Nations) capital markets,
markets. Qualified investors in Singapore can also access
which include Thailand, Philippines, Singapore, Malaysia,
NYSE Liffe, the derivative exchange of NYSE Euronext.
Vietnam and Indonesia.
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
KAS Selections • May 2012
19
Collateral and liquidity management in practice Collateral management and liquidity management are an
The combined ISDA/CSA reduces the pension fund’s
important part of internal governance amongst Dutch
counterparty risk. Only for it to be replaced with an
pension funds. New legislation and regulations, amongst
operational risk, however. The legal documents are only of
other things, are prompting more and more pension funds
value to the fund if they are correctly executed. This
to examine the possibility of outsourcing the collateral
inevitably highlights the importance of having a well-
management process. They are also in search of the
functioning collateral management function based on
qualitative provision of liquidity. KAS Selections describes
durable systems and expert personnel. The employees
a practical example.
concerned must have a thorough knowledge and understanding of the OTC derivatives that have been traded
Pension fund X has decided to outsource its asset
and the underlying ISDA/CSA.
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 liquidity risk, something which previously received little or no attention in the case of collateral management, is growing in importance
The fund decides to negotiate an exchange rate hedge (OTC derivative) in order to mitigate the risk. An inherent
The day-to-day working practice within Collateral
requirement for contracting the derivative is the signing of an
Management (laid down in the CSA) consists of:
ISDA agreement. A counterparty risk exists during the term
• Valuing positions
of the derivative. In order to mitigate this risk, the fund
• Margin calls
decides also to arrange a CSA (Credit Support Annex) with
• Reconciliation
the counterparty, in addition to the ISDA.
• Collateral settlements 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.
20
KAS Selections • May 2012
New clients Netherlands 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
Goldring S.A. Order Execution, Back Office Services, Custody and Settlement I.P. Intercapital Markets AD Derivatives Clearing London Capital Associates Custody and Settlement Nationale Nederlanden Financiele Diensten Custody and Settlement Privium Fund Management Order Execution and Settlement Stichting Fondsenbeheer Waterbouw Custody, Settlement and Tax Reclaim
equities while it is required to pledge European government bonds or cash as collateral. This is a liquidity risk as well as
United Kingdom
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
JM Finn & Co Order Execution and Derivatives Clearing Linear Investments Limited Back Office Services, Custody, Settlement and Model B Wedbush Securities Back Office Services, Clearing, Settlement and Securities Borrowing
(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.
Personnel notes Client Management 1 March: Martine Sala, The Netherlands, Account Manager Institutional Services Sales & Business Development 1 March: Edgar Kooter, Sales & Business Development Institutional Services Netherlands
KAS Selections • May 2012
21
Tax on financial transactions In times when the news is dominated by economic
transaction tax is far broader. Whilst the Tobin tax was
stagnation and increasing government deficits, the
restricted to foreign exchange trading, today’s transaction
introduction of a tax on financial transactions is a popular
tax targets the buying and selling of virtually all marketable
subject of discussion in Europe. Amongst the general
securities, while foreign currency transfers actually remain
public, because a financial transaction tax is regarded as
exempt from the levy. Nonetheless, the intention of the
a way of making the financial sector share in paying for
measure is identical to Tobin’s original idea: to combat
the consequences of the financial crisis. And amongst
speculation and strengthen financial stability.
politicians, because it is seen as an opportunity to generate additional government revenue and to
European Commission Proposal
discourage undesirable financial activities.
At the end of 2011, the European Commission (EC) presented a proposal for a tax on financial transactions in
The financial transaction tax can be seen as a modern
the Member States of the European Union (EU). Under this
version of the ‘Tobin tax’. In 1972, James Tobin, winner of
proposal, the tax would be levied on all transactions on
the 1981 Nobel Prize in economics, proposed a tax on
financial instruments between financial institutions when at
foreign currency transfers in order to combat speculation.
least one party to the transaction is located in the EU. The
Although the idea behind the present plans is identical to
exchange of shares and bonds would be taxed at a rate of
that put forward by Tobin, the scope of the financial
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.
22
KAS 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
Germany presented an alternative plan that proposed a tax
because financial institutions were settling transactions
modelled on the UK’s ‘stamp duty’. Under this proposal,
outside Sweden.
only share transfers would be taxed. European leaders may
Dutch Finance Minister Jan Kees de Jager has also criticised
also choose to look at other ways of making financial
the EC’s proposal. He has referred to studies carried out by
institutions pay their fair share. Mr De Jager, for example,
DNB and CPB, the Netherlands Bureau for Economic Policy
has already suggested examining a levy on the profits or on
Analysis, which indicate that the introduction of the tax
the balance sheet size of financial institutions.
would have a negative effect on economic development and make little contribution to the aim of attaining greater
In order to accommodate the Member States who were less
financial market stability.
than enthusiastic about the plans, European Commission
The former French president Nicolas Sarkozy, by contrast,
president Jose Manuel Barosso said that the revenues from
was a supporter of the tax. Unwilling to await the outcome of
the financial transaction tax could be used to help reduce
the debate between European government leaders, he has
the national contributions of EU Member States. An
approved the introduction in France of a tax on the purchase
argument that in times of increasing government deficits just
of French shares, high-frequency trading activities and the
might be enough to convince doubting government leaders.
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,
KAS Selections • May 2012
23
NETHERLANDS
NETHERLANDS
UNITED KINGDOM
KAS BANK AMSTERDAM P.O. Box 24001 1000 DB Amsterdam The Netherlands Spuistraat 172 1012 VT Amsterdam The Netherlands T: +31 20 557 59 11
GERMANY
KAS BANK LONDON 5th Floor 10 Old Broad Street London EC2N 1AA United Kingdom T: +44 20 7153 36 00
KAS BANK WIESBADEN Biebricher Allee 2 65187 Wiesbaden Germany T: +49 611 1865 3800
www.kasbank.com