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FMA wants more money

The Financial Markets Authority wants more funding – and the Government thinks financial markets participants should pick up the tab. 

Tuesday, July 26th 2016, 6:01AM 7 Comments

by Susan Edmunds

Authorised financial advisers could end up paying an extra $200 a year.

Commerce and Consumer Affairs Minister Paul Goldsmith said the FMA needed enough funding to carry out its statutory responsibilities and maintain confidence in the markets.

But he said its budget was set in 2011, before the Financial Markets Act was introduced.

“This Act has led to the FMA having significantly greater functions and responsibilities.”

A consultation paper has been released that notes the financial markets are now much bigger and more complex to regulate.

The FMA currently gets $26.2 million a year in funding, from the Crown and financial markets participants’ levies.

A cash surplus the FMA built up in its early years by delaying projects and using other cost-saving measures is likely to run out by mid next year.

The FMA also faces challenges including hiring the right people, building its technology capability and maintaining engagement with the public and markets.

The consultation paper outlines three funding options that are possible. The FMA would like to get to $38.6 million per year.

It says it needs that to enable it to proactively identify risks, build its ability to assess harms and oversee conduct in insurance and banking, engage with the market, deal with disruptive market events and improve its ability to gather and use intelligence, among other things.

The Government’s preferred position is for the additional funding required for the FMA to come from financial market participants via the existing FMA levy, which is paid by participants for each class in which they do business.

With no funding change, 60% of the FMA’s total funding will come from the FMA levy, reset to $17.1 million.  Under the biggest change proposed, the levy would make up 70%, or $27 million a year.

Under the no-change model, AFAs would pay $300 a year, or 4.1% of total levy revenue. Under the lower funding case, they would pay $420, or $520 under the FMA's ideal scenario.

That is up from $348 at present.

“We want to hear what consumers, industry groups, financial market participants and businesses that have an interest in the FMA think of the options presented and proposed changes to the FMA levy,” Goldsmith said.

Tags: financial advisers FMA

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Comments from our readers

On 26 July 2016 at 6:07 am Pragmatic said:
1,853 x $200 = $370,600 = another tax on an already stretched community.
$26m x 2% = $520,000 = the FMA should better manage what they receive from the government, and resist burdening and already burdened industry
On 26 July 2016 at 10:57 am gaman AFA said:
The FMA is underfunded given the scope of the mandate they have been given by the government. Pragmatic - would love to see u provide evidence of where the FMA is mismanaging what they currently get? Cant see excessive salaries, junkets etc.

Levying some of your Australian fund managers who distribute heavily in to NZ would be a big help,too.

The smartest way to fund the FMA would be to levy the ultimate beneficiaries of a well regulated market - investors.

I have no idea what the managed fund industry size is in NZ. $60 billion? A 5bp charge on every fund levied as of 31 March each year would raise $30 million before you even look to a modest fee from industry participants.
On 26 July 2016 at 4:17 pm gavin austin adviser business compliance said:
I hope Phil will allow this rather long comment as it is important that DIMS providers see the full potential impact of this new Levey proposal.

So FMA need more money – an increase of 47% if they get the top level they want. So where is it all this is coming from?

Not Government but industry and whilst the BIG end of town will pay more they won’t necessarily pay more in proportion to the services and products on offer.

In fact compared to some they may pay less.

We saw with the FMC Act that interested parties wanted or lobbied for certain services (ie DIMS) to be manipulated into a box/category that would make it unattractive for small players.

However they misjudged the tenacity of the small to medium size players and instead of all DIMS being provided by the BIG BOYS we have a good number of smaller sized very good operators in this service sector.

BUGGER they said how we can fix this – simple said an MOBIE/FMA person or persons lets levy them out.

So we see that the initial proposed levy was $1739 excl GST a very reasonable annual levy (why anyone does things ex GST nowadays I don’t know – could be a ploy to make the numbers look better perhaps).

Under this new consultation process the fees will range between $5000 and $6500 for a small DIMS with FUM less than 100 million ( +290% to +370% increase).

For DIMS with FUM >$100mill but <$250 mill the range will be $10,000 to $13,000 (+580% to +750%) and for LARGER players >$250 mill the annual levy will be $31,000 to $38,000 depending on the outcome of the FMA s 4 options (option1 isn’t going to happen).

That’s a whopping +1780% to + 2190% increase.

So my prediction for the outcome is a mass exit of DIMS licensees creating even more space for the BIG BOYS to play in or current licence holders will need to get together and create an offering based on increased scale.

Outcome for FMA = less licensees to monitor with more funding to play with = very happy regulator but less competition and choice for the poor old consumer.

By comparison the insurance and kiwisaver sectors are left relatively unscathed yet an increase in their levies would be able to be spread across a far larger number of consumers and probably absorbed with no cost flow on to consumers and no one shutting up shop.
On 27 July 2016 at 1:36 pm Brent Sheather said:
Very useful comments Gavin. As regulation proceeds it is becoming more and more obvious, if it wasn’t already, that the FMA and the Ministry of Investment Banking are agents of the banks.

It is also clear that unless there are some major changes (highly unlikely) the days of the non-integrated, independent advisory firms are numbered.

The upside of course is that the Gold Coast is warm and has surf for most of the year.
On 27 July 2016 at 2:57 pm gavin austin adviser business compliance said:
You are spot on Brent but there may be no room on the beach to spread your towel due to recent exit of all the AFAs who finally throw their hands in the air in despair and join you in retirement in the sunshine.
On 28 July 2016 at 2:59 am henry Filth said:
It's hard enough finding a financial adviser who does advice rather than sales.

My experience is that the "big boys" don't employ a lot of them.

I can't see this leading to there being any more advisers, but I can see it leading to there being more salespersons.
On 29 July 2016 at 4:08 pm Winka said:
As an old 'Money Manager' (but not 'flat on the beach' yet), let me place a point or two.

Maybe there can be proven to be a need for regulation to keep the very few unscrupulous advisers out of a relatively huge number of advisers off the street?
However it has to be truly 'effective' regulation.
Not as we have evidenced with such failures as missing the boat with the David Ross' Ponzi shame that would have been quite easy to identify, and much earlier?
Or the ex pat kiwi who returned to NZ from Australia with a handful of fraudulent 'qualifications' from Melbourne University, and scored a top job within the FMA..!

Crikey, did we not have what was supposed to be an ultimate part in 'regulation' here prior to the GFC, a prospectus. And did that save investors from bad investments? No.
And why were the Trustees of each prospectus not taken to task for not doing their job, or are they in some way seemingly protected from any liability?

$25 million in the tank (and running out) is not far from the amount wasted on a flag referendum that went nowhere.

How some of these government sideshows can even try and justify such huge numbers is a sensible question to be asked by you all involved in this financial profession, and one that should be answerable to, maybe by public audit. Michael 'The Don' Donovan

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