The financial services industry has undergone significant changes in the past five years with respect to global regulatory, controls and statutory compliances. Financial institutions worldwide are faced with an increasing number of state regulations, some of them with far reaching consequence and tough timelines. Anti-money laundering, anti-terrorism finance, Sarbanes-Oxley, Solvency II and Markets in Financial Instruments (MiFID) directives are just a few amongst the ever-increasing barrage of proposed new regulations and guidance.

The rules and guidance that have emerged have somewhat different objectives, the data, risk management and control processes and the governance structures. This increasing number and growing complexity of regulations governing the financial services industry require organizations to devote more and more resources to compliance. Financial institutions, the world over, have started making huge investments in order to comply with these initiatives and the compliance costs are burgeoning with regulations appearing at an increasing pace.

Taxes are applicable both on the indirect and direct taxes front. While capital gains tax, securities transaction tax and attendant surcharges are levied by most nations, services rendered by financial institutions and bodies that constitute the financial services sector are taxed by means of service tax or the goods and services tax.

Banks, Brokers, Insurance companies (both general and life) and a large part of the ecosystem surrounding the financial services sector are under the service tax net.

Since service tax legislations are relatively new, they have taken into account most systems that have evolved as facilitators of businesses. Thus most legislations have provisions for centralized accounting and the concept of input service distributors – both of which are applicable to the financial sector in a large measure.