See also:

A year to remember

Holiday Hours

ESG Standards set to turn '19' in 2009

FundSERV 'rocks out' at 15th anniversary celebration

Looking back over 15 years

N$M penalties increasing

FundSERV Network Performance

By Michael Critchley

"Are you ready?" We've all heard those words before, especially those in the financial sector. Remember December 31, 1999, when we watched with eager anticipation — or dread — the clock ticking down its final seconds towards the new millennium? Would it be the end of the world? Would all record of our investments and life savings be lost when the digits flicked to 2000?

Fortunately, Y2K's bark was worse than its bite and nothing of any significance occurred. Unfortunately, we'll never know why nothing happened. Was it because companies reprogrammed their systems or was it because it wasn't an issue to begin with? It's the whole chicken and the egg argument. Regardless of the answer, there was one important lesson learned: Most companies were prepared.

It's now almost nine years later and we find ourselves in another similar situation on a much smaller scale: the introduction of the new Tax Free Savings Account (TFSA).

In the February 2008 Budget, the federal government announced that starting January 1, 2009, Canadians 18 years of age or older will be eligible to save up to $5000 a year in a TFSA without paying tax on investment earnings and capital gains when the funds are redeemed.

When it comes to predicting how popular TFSAs will be, it's probably safe to say that Nostradamus would predict the TFSAs will be very popular with Canadians. Let's see, keep money in an account where you have to pay tax or open one where you don't? The answer is obvious.

Not only is new money going to flow into TFSAs, but portions of monies in existing non-registered accounts will most certainly be transferred in as well. Furthermore, many investors may also choose to redirect portions of their regular RRSP contributions to their TFSA to take full advantage of the tax-free benefit.

What does all this mean? From an industry perspective, it means the ESG Standards had to be updated before the January 1, 2009 deadline to accommodate the various types of TFSA transactions that would need to be placed through the FundSERV network — new account type setup, transferring between investment accounts, redemptions, and transfers from client name to client name accounts. Changes to business rules were also required to address TFSA distributions, dividends, fees, redemptions, withholding tax, PACs, SWPs, etc.

To capture the necessary requirements, FundSERV consulted with many of its customers prior to releasing ESG v18.6 to analyze the full impact of the TSFA. With this information, the helpfile was updated and published in August, followed by development and testing.

ESG v18.6 went live for trades on November 24, 2008, and included the TFSA requirements and other federal budget-related changes relating to RESPs, LIFs and RDSPs.

"We're ready and everything is in place for the TFSA for January 1," says Brian Gore. "The industry said it wanted TFSA transactions automated and we've obliged. The only question now is whether all our customers' systems will be ready. If they're not, and they can't take advantage of the TFSA functionality in ESG v18.6, they could be facing a significant increase in manual transactions, which wouldn't be a good thing, especially with RRSP season right around the corner."

The full impact of the TFSA on the investment fund industry is yet to be seen. But with the release of ESG v18.6, the framework is in place so fund companies and dealers can absorb the anticipated surge without issue when the TFSA floodgates open on January 2, 2009, the first business day of the New Year.

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