FTTs impact across the organisation
Financial institutions need to act now and involve the stakeholders from across the business
FTTs impact a number of different areas of a financial institution from the front office trading strategies through to the clearing and settlement systems and processes. The level of impact in each of these areas will vary depending on the type of institution - broker, custodian, asset manager etc. For each of the areas of the organisation which are likely to be impacted, the table below summarises the key activities that will need to be undertaken by those functions in response, together with a summary of the main deliverables which will be required.
- Determine how the FTT would impact trading strategies and the products that each desk/location/fund vehicle has a mandate to trade.
- Determine whether FTT costs will be recharged to end investors or the extent to which these will be absorbed internally.
- Assess the impact of FTT on market liquidity, product pricing and bid/offer spreads.
- For products which are potentially subject to FTT review and identify the booking locations.
- Map the location of counterparties to in-scope financial transactions.
- Inventory of products, transaction types and the location of counterparties.
- Operating model for recharging FTT.
- High-level model of impact across the product range.
- Assess the changes needed to current operations function activities and processes to cope with settling FTT across a diverse range of financial instruments.
- Documentation of existing process flows for the operation functions at each stage of the transaction life-cycle.
Tax and legal
- Determine the role that the inhouse tax resource will play in providing tax technical input and in supporting the lobbying activity.
- Review customer terms and conditions to determine whether the FTT can be recharged to customers where appropriate.
- Prepare detailed memo setting out the technical analysis of FTT regime as it will apply to the organisation.
- Identify key areas of uncertainty in the application of the rules given its business profile and trading activities.
- Detailed memo setting out the technical requirements of the FTT regime.
- Recommendation of the approach to amending existing customer terms and conditions.
- Map existing systems from front office booking to clearing and settlement interface for all in-scope products.
- Review existing data fields to determine what additional information should be held on counterparties and customers.
- Assess third party vendor solutions for data feeds on legal entities, in-scope securities and tax engines.
- Determine whether tax engines developed in-house for other FTT regimes can be adapted to cater for the new requirements.
- Documentation summarising existing systems architecture.
- Recommendations as to third party vendor solutions.
- Recommendations as to changes to systems architecture to capture additional data fields.
Risk management and compliance
- Define what risk management procedures are required to monitor compliance with FTT regimes and the extent to which any third party assurance is required.
- Compliance model.
- Internal audit review procedures.
- Controls documentation.