Once again, the one issue that has dominated the international financial services industry in recent...
Once again, the one issue that has dominated the international financial services industry in recent weeks is the forthcoming introduction of the EU Savings Directive (EUSTD). This initiative has been dogged by controversy since its inception and, as we approach the June review, the horse-trading has hotted up further.
The most shocking thing for the international community has been that the 'offshore centres" agreed so readily to negotiate. After all, aside from Dublin and Luxembourg, they are not in the EU and not therefore bound by its directives. It is a sign of how the reputations of the jurisdictions has improved that the foot-stamping of the Cayman islands (see lead story p3) has caused such offence.
However, it now seems that in exchange for a substantial package of positive measures from the UK, the Caymans are back in the fold. However that might tick off the more obliging centres who have not gained anything by their compliance, it seems we are back on track.
But back on track for what? What will the outcome be for the international financial services when (or if) these measures are implemented? For a comprehensive look at the implications for offshore bank accounts, see the EUSTD coverage in this month"s offshore banking supplement.
Meanwhile, for UK-domiciled investors, there is going to be double trouble, as the Treasury is looking to abolish the distributor/ non-distributor distinction for offshore funds. At the annual meeting of Offshore Financial Trade Association, this move came under attack from Howard Flight MP, opposition treasury spokesman for the Conservative party in the UK and joint chairman of Investec Asset Management.
Flight accused the British government of introducing the change for a short-term tax increase, while not thinking about the impact it could have on the finance industry, in particular the hedge fund industry.
He said: "Although the current system had its problems I always thought it worked pretty well, particularly from a UK perspective, but the objective will be to tax UK residents on income accruing in international funds. It"s a way of squeezing more tax out of investors.
"Of course that completely messes up the management of hedge funds because the whole point of hedge funds is that there needs to be no difference between income and capital returns as you are looking at all varieties of optimisation of returns. You are now going to have to think to what extent you have UK tax resident investors and whether you are going to deliver to them huge tax bills."
As London is the base for the majority of European hedge funds, we can hope that this looming issue will be looked at before serious damage can be done, or it throws the finance industry into uncertainty once again.
For both of these major changes, the finance industry must put pressure on the EU and UK to clarify their positions as soon as possible whatever the outcome because, in the end, uncertainty is the most damaging problem of all.
Partner Insight: Continuing the Architas education series for clients.
What made financial headlines over the weekend?
290,000 already affected
Putting the tech into protection
Square Mile’s series of informal interviews