Since it was proposed by Jose Manuel Barroso two weeks ago I’ve asked a number of fund houses and intermediaries what they propose to do if this latest incarnation of the Tobin tax is passed into law.
The responses I’ve received concerned me to varying degrees.
Some people scoffed and said the tax would never get through, others said the potential implementation of the tax was too far away to get het up about, and a third group looked at me with blank incomprehension.
Clearly the latter is the most worrying reaction, but the other two should not be overlooked.
Those in the first camp seem to view the British veto as a knight in shining armour, who will single-handedly prevent the FTT from setting foot on UK soil.
This should not be taken as read for two reasons. Firstly, the official Tory position on a Tobin tax is a suppportive one as long as it is a global levy.
Will it be passed globally?
Unsurprisingly the US government is not an advocate of the tax, but there is a considerable lobby of Wall Street haters who would love to see a tax on bankers and their institutions in an attempt to reduce high-frequency trading.
In addition, Barroso and German Chancellor, Angela Merkel, have joined forces with the intention of taking the FTT to the next G20 meeting.
Another threat to British opposition is if the European Commission succeeds in presenting the FTT as a form of VAT, at which point the British veto will be of no use.
As reported in The Telegraph last week, MEP Kay Swinburne said at a private breakfast at the Conservative Party conference that "Britain was wrong to relax and rely on its veto to block the tax".
She added that a group led by European tax commissioner Algirdas Semeta were plotting to disguise FTT as a VAT, which would strip the UK of its right to veto.
In the EU all new taxes have to be voted in unanimously unless they are a VAT, which only requires a majority vote.
Since many core European nations view the FTT as a populist measure, gaining a majority vote is not out of the question. So the financial services would do better to take the issue seriously.
Admittedly, if the tax was approved it would not come into effect until at least 2014, which could account for the lack of urgency on the part of financial services professionals (reponse number two).
But as we have seen with RDR, these far-off concepts have a habit of creeping up on you.
What are the implications?
The Investment Management Association (IMA) said although the FTT is designed to target financial institutions, it will be individual investors who end up footing the bill (as per usual).
It estimated that an investor could end up paying a charge as much as five times within one fund, depending on the sales chain involved.
David Cowell, director of Myddleton Croft, said the charge could replace stamp duty in the UK, which would at least mean one charge was abolished for another.
The form the FTT will take and the way it will feed through to investors and their advisers is far from concrete. But it is clear the tax could have considerable implications on the charging structures of funds.
For this reason both intermediaries and fund houses should have an ear to the ground for further developments.
As a heads up: Barroso and Merkel’s next target, the G20 summit in Cannes, is on 3-4 November.
