Fund managers, administrators and custodians have reported a smooth entry to Taxation Of Financial Arrangements (TOFA) compliance after working for more than two years with DST Global Solutions on its HiPortfolio software. LESTER_Ray_sep2010

The enhancements to DST’s investment administration management software, HiPortfolio, were developed with members of DST’s Advanced User Group (AUG) which included National Australia Bank, BNP Paribas Securities Services and JPMorgan Worldwide Securities Services Australia and New Zealand.

Data quality was a preoccupation with NAB’s general manager asset servicing, Ray Lester (pictured). “We remained focused on data quality from the calculation engine component of the project right through to full implementation in the production environment, with the associated reporting developed and fully tested successfully.”

DST’s David Rhind, senior manager investment accounting solutions, estimated that DST and its co-developers each invested more than 5,000 work days on the project during the past two years to ensure compliance by July 1 this year.

BNP Paribas’ head of product management, Daryl Crich, said TOFA was “the biggest change in tax legislation in 30 years so it has been a significant piece of work for the whole financial services industry”.

JPMorgan, which recently renewed its relationship with DST with a three-year contract, uses HiPortfolio on an in-house server, said Bradley Kelly, vice-president product and strategy, JPMorgan.

So, far, the cost of TOFA-compliance has just been a cost of doing business, but this may change. But, DST’s chief executive officer, Tom Abraham, sees “potential upsides” in the competitive capabilities, and the analytics around the impact of investment decisions. “At least one client is doing this now,” he said.

During the project, data cleansing emerged as a major issue, said BNP’s Crich. “You uncover things lurking in the information, and if the information is not there, then it’s a question of interpretation of the legislation and the methodology used.

The TOFA rules (Tax Laws Amendment [Taxation of Financial Arrangements] Act 2009) aim to cut tax distortions, to tax financial arrangements based on economic substance, and to enhance financial risk management – especially for hedging. In addition to the Act’s complexities, there are six methods of bringing gains and losses to account (four are optional, two are by default) and the choice of method is irrevocable.



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