EUROPE - The Dutch pensions regulator (DNB) has attacked the European Commission's controversial financial transaction tax (FTT) proposal, saying it could cost the industry more than €4bn a year.

It also said it was "doubtful" the tax would ever curb disruptive market behaviour - one of its stated objectives.

The Commission first introduced the idea of a transaction tax - which would be levied on the purchase and sale of shares, debt securities and derivatives - last September.

At the time, it argued that the financial sector had "played a role" in the economic crisis, and that it should make a "fair contribution" for the damage caused.

It also said the FTT would reduce "competitive distortions" and discourage "risky trading", including speculation.

But the Dutch pensions watchdog said it was questionable whether the tax would achieve any of its goals, while the negative impact on the economy would be "a certainty".

"While an FTT might, for instance, counteract forms of arbitrage, such as high-frequency trading, it may also cause traders to relocate or to increase their risk appetite," it said.

"Pursuing a riskier trading strategy to protect one's margins would run exactly counter to what the Commission's proposal aims to achieve. Which of the two possible effects would win out is unpredictable."

The DNB claimed that the lower rate on derivatives compared with shares might provoke arbitrage and intransparent financial innovations and that, because the tax applied to intermediaries in a transaction, it could cause a "cascade effect", multiplying the taxation rate.

It also argued that the tax failed to distinguish between speculative and "normal" market behaviour, and that much of the revenue would therefore come from banks and pension funds.

It estimated that the tax would cost Dutch banks, pension funds and insurers more than €4bn a year.

The European Federation for Retirement Provision (EFRP) also questioned the merits of the Commission's proposed tax.

Patrick Burke, chairman, said: "If the proposal were approved in its current form, pension funds, IORPs and companies managing assets on their behalf would be deeply affected."

According to the EFRP, the tax would multiply the actual rate paid by pension funds and IORPs, and dissuade investors based outside the European Union from entering into transactions with EU-based institutions.

If an FTT were ultimately introduced, it concluded, pension funds, IORPs and financial institutions managing assets on their behalf "should be exempted from its application".