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Monday 15 April 2013 The Financial Transaction Tax (FTT) will damage savers and investors across Europe, and will drive away the firms from whom it expects to raise billions of euros in taxation, it has been claimed. The Association of the Luxembourg Fund Industry (Alfi) was in Edinburgh highlighting its campaign against the controversial tax, which is set to be approved by only 11 EU member states but enforced in all 27. The FTT is one of three current EU financial sector initiatives being fiercely fought in the UK. The fund management industry faces a cap on bonuses to bring it into line with investment banking, while tighter solvency rules are said to pose a serious threat to pension funds. Anouk Agnes, a director of Alfi, said it strongly opposed the FTT. “We think it will be catastrophic for the investment fund industry, in Luxembourg but also in Europe generally. First of all we believe investment funds should not be in the scope of the FTT because they were not the origin of the financial crisis. “Second we believe it will not be the financial actors who pay the tax burden but the end investors, because obviously the costs will be added to the investments. “Finally we see the tax amounts that should be collected as an illusion, because we are afraid firms will find ways round the tax and even possibly relocate entirely outside Europe, which is in nobody’s interest. So it is difficult to understand who the FTT will ultimately benefit.” However Ms Agnes admitted that, politically, if 11 countries wanted to push FTT through they would. Alfi has said the tax “ultimately will have an extremely negative impact on all long-term savings of European Union nationals, including pension funds” and a “devastating effect on the long-term financing of the European economy”. Luxembourg is Europe’s biggest fund centre, with offerings that sold in 70 countries round the world. Firms using its “passported” UCITS funds include Aberdeen Asset Management, in 27 countries, and RBS in 23, and the funds support part of the back office operations in Edinburgh, of firms such as JP Morgan, Citigroup, State Street and RBS. Denise Voss of Franklin Templeton, vice-chairman of Alfi, said the FTT was supposedly intended to deter speculative activity, but would hit hardest at money-market funds, which could disappear because they were the funds trading the most frequently. “These costs will have to be picked up by somebody,” she said. “We believe the insecurity will make important actors leave and relocate.” The tax will apply to redemptions from funds, though not subscriptions, and on all buying and selling within funds. Ms Voss admitted this would have the least effect on equity funds with low turnover, and also that managers running broad funds for investors inside and outside Europe would probably not relocate. On the proposal to cap fund manager bonuses, Ms Agnes said: “The remuneration issue was related to banks and more specifically to investment banks and suddenly even UCITS are affected, which are already regulated and very transparent. The remuneration rules do not make much sense and are just an additional burden.” The current EU proposals would outlaw fund management bonuses that exceed fixed annual salaries, and extend the timeframe for some deferred payouts from three to five years. Daniel Godfrey, chief executive of the Investment Management Association, has said it will “have the opposite effect of what they are seeking to achieve”, raising costs for consumers and weakening the link between performance and rewards. Meanwhile, the National Association of Pension Funds warned new EU proposals to impose insurance company solvency rules on pension funds could increase UK scheme deficits to at least £450bn. Joanne Segars, NAPF chief executive, said: “This project has been conducted at breakneck speed due to the commission’s ludicrously tight timetable. This cannot be the basis for formulating a policy that could undermine the retirement plans of millions. “The European Commission needs to rethink its proposals… it would be better to focus on the 60 million EU citizens who have no workplace pension, instead of eroding the good pensions already in place.” Continue reading →