As we discussed in the first post in this two-part series, financial transaction taxes (FTTs) already have an extensive reach in the world’s financial markets. With new FTTs potentially on the horizon, and an ongoing conversation about the increasing need for cost optimisation, managing transaction tax processes efficiently will become an ever more complex business.

To handle FTTs – or indeed any other form of transaction tax – you need the relevant transaction tax data at your fingertips. Not just for your operations teams and your compliance officers, but for partners, tax officials and auditors, who can demand to see your books at very little notice.

Being compliant is not enough. You also need the information to prove that compliance to outside authorities. You need to demonstrate that you have accurately distinguished between in-scope and out-of-scope instruments and that you have applied, and recorded, the correct exoneration codes. And this technical and operational effort needs to be replicated to cover all the different taxes that apply across different regions and different desks.

The drive to automation

Most banks are already operating within a large spider’s web of siloed approaches for processing the variety of transaction taxes impacting trading desks currently. Not surprisingly, the mix of legacy processes, manual operations, spreadsheets, and other non-auditable documentation that have been supporting and underpinning transaction tax management over the years are struggling to cope.

It all falls very far short of automated tax operations – and in an increasingly fast-paced environment, where delays and time-lags are less and less tolerable, it makes tax efficiency more of a hope than a realistic possibility.

Even the smartest, most experienced teams are going to struggle in the current trading environment. That’s why we have been working with market participants to re-engineer our established tax management solution by building a new and future-proofed platform that addresses the current global interplay of tax regulations, applications, and exonerations, as well as any tax framework that emerges in the future.

Platform principles

There are a number of key principles that have directed the development of the new platform. The first is that, like anything that relates to tax, the tax calculation itself is relatively straightforward. It’s knowing when and how to apply that calculation that is complex – and that is all about giving the right people access to all the data they need at the point they need it to make effective decisions.

The second is that all institutions are unique. Easily configurable systems are a necessary component of any financial system. So is understanding the nature of exceptions and how to give people the tools to manage those effectively. All the best technology in the world won’t necessarily guard against errors entirely. Often upstream disparate or manual systems can feed erroneous or inconsistent data into the tax calculation process, for example. How you deal with those errors, what you flag, how far you blend an automated and manual response, and how all that fits in with operational policy, is a choice that your team should be able to make – leveraging flexible technology.

Incidentally, ease of configuration is a key part of protecting against further uncertainty. If new exoneration codes, or even new tax policies are introduced, you need to be able to respond without bringing in the IT cavalry.

The third principle is that, like most trading operations, taxes are not a stand-alone function. They interact with billing and payments, reporting systems, and general ledger and accounting systems, among others. Interoperability and easy integration are essential – and that means an API-first approach.

As a bonus, the same principle of integration applies to the way technology interacts with the business itself. Tax liabilities cannot be optimised if different desks or different units are working independently of each other. Technology platforms are a means to get over those internal walls. It’s about giving visibility to the individuals who need it – team heads, compliance officers, tax managers, auditors, and the corporate tax function. But gathering up the individual perspectives into a wider, institutional view is where the greatest efficiencies can be found.

Look to the future

The final principle is that the future is just as important as the present. Many institutions have struggled with legacy systems that offered the necessary functionality at the time but have struggled to keep up with today’s requirements.

What’s needed is a modern technology platform, cloud native, that can persist normalised data throughout the organisation. As well as forming the basis essential in reducing hosting costs, this will allow for artificial intelligence and machine learning models to derive even greater value from business insights. This gives institutions real choice about how to deploy, scale and redeploy critical functionality and resources as needs change, based on increases in trading volume and, crucially, the introduction of new FTTs.

And this approach ensures that whatever happens with regards to tax policies on financial transactions – or any other transaction tax – banks will be able to process efficiently, and with full transparency.

If the challenges we have outlined in these two articles resonate with you and you would like to learn how Cognizant’s Meritsoft solutions can help with your transaction tax management operations, contact us at