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Winners and losers of FMA levy hike

The financial services industry must cough up more cash for its watchdog because the government is cutting the amount it funds the Financial Markets Authority to 17 percent of its total budget by 2023.

Thursday, May 21st 2020, 7:33AM 3 Comments

by BusinessDesk

The government currently pays 25 percent of the Financial Markets Authority’s $36 million operational budget with the rest funded through industry levies.

The big banks and insurers – which are undergoing major regulator scrutiny at present following fallout from the Australian Financial Services Royal Commission, will shoulder the bulk of the increase.

The country’s biggest four banks will take on a 70 percent levy hike next year, while a shift in tiers for insurers will mean some of the largest will pay 50 percent more.

The changes were announced in last week’s budget, when the government lifted the budget for the financial regulator by $12.5 million for financial year 2020/21, and said it wants to be at $60.8 million by 2022/23.

Based on current asset values, next year BNZ, ANZ, Westpac and ASB together pay $3.6 million to fund the FMA. Officials wanted to lift the share of bank and non-deposit takers' levies from 11 percent to 13 percent of the total sum raised from industry, recommending they eventually pay $5.8 million from $2.8 million under the old model.

The biggest insurers will also pay more than 50 percent more, according to the levy guide, and their contribution to the total level was recommended to shift from 7.4 percent to 10 percent.

The major fund managers ANZ, ASB, Westpac and AMP, which all have more than $10 billion under management will together pay $1.8 million, based on data current at March 31, 2020.

The next tier of managers who have more than $5 billion under management include Fisher Funds, Milford Asset Management, Mercer, Nikko Asset Management and BNZ will together pay $1.6 million in levies. The government has only set the levy for next year with the upcoming year's rates still being reviewed.

Fund managers are currently the group that contributes the biggest portion of the FMA’s industry funding, with 20 percent of the levy, although officials want to reduce this.

“The hardest hit are the large licenced, insurers, banks and non-deposit takers. While it won’t hurt their bottom line materially, nor is it designed to change their behaviour, increased levies may create more of a barrier to entry for some,” said Tim Williams, a partner at Chapman Tripp.

“The real question is the equity of the allocations – are we striking the right balance and providing for the principle of “user pays” or taking the easy road of just tilting towards deep pockets?” he added.

At the smaller end of the town, the changes are just a few hundred dollars a year. Financial adviser Murray Weatherston said he was not going to “get his knickers in a twist” over a small sum, when others were taking more of the burden.

“Arguably, the people who benefit from regulation are the consumers so it's arguable the government should pay,” he added.

Financial Advice New Zealand chief executive Katrina Shanks said while its members wanted to see a well-funded regulator, it didn’t understand how the proportion of government funding had now shifted to 17 percent. Cabinet papers indicate the majority of submitters were in favour of the Crown's funding remaining at 25 percent.

“There just isn’t any financial analysis into how they’ve done the split, so it’s hard to justify,” Shanks said, adding that she would prefer costs were split 50/50.

“In terms of the increase, the majority of my members are small businesses, so they are cost-sensitive, and everyone is seeing a reduction in revenues.

“You do need a strong regulator, so we do support the enhanced model, but we are disappointed in the government picking up less of the funding.”

Cabinet papers released alongside the levy change documents indicated that Commerce Minister Kris Faafoi was aware the increase could add stress to the industry during covid-19.

"However, in addition to phasing the FMA’s appropriation increase over three years, most financial services are essential services and are continuing to operate in some form. I believe these factors, when combined with the government’s other COVID-19 business support measures, should sufficiently minimise the potential impact of higher levies on financial service providers."

The movement of the FMA to an enhanced model was recommended by PwC, giving the FMA a budget of $60.8 million, was preferred.

« Financial advice commissions not under threat: FaafoiWarning association numbers could fall »

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Comments from our readers

On 21 May 2020 at 2:22 pm Elephant1 said:
As the leaders in Financial supervision it concerns me ,the FMA can't live within a budget.They should examine their costs, including salaries and work hard to provide a service .
On 22 May 2020 at 11:36 am JWM said:
The financial industry pays taxes and so do consumers who are probably the only beneficiaries of the FMA. The government is well funded for this department. The levies, and certainly the increases, are just another tax.
On 22 May 2020 at 1:55 pm Pragmatic said:
I’m a strong advocate for the NZ Financial Services industry having robust industry watchdog to ensure efficiency of markets and maintain consumer confidence. Aside from my occasional niggles with the Regulator, fundamentally I have no major concerns with the FMA, and tend to agree with the Dec 19 “Financial Markets Authority: Efficiency, effectiveness and baseline review” published by PWC - that the FMA is in need of greater financial resources to ensure that expectations are met.

My issue (which extends to most government entities) is the argument to justify the above market salaries that are paid to their employees. The 2018/19 FMA accounts confirmed that $24.3m was spent on a total of 212 personnel, equating an average of $114,622 salary per head. Not all of these people are ‘employable’ at that rate outside of the regulator.

I’m also of the view that the Crown’s current contribution of $36m to the FMA should be increased to ensure that their expectations can be met, with a token contribution from the audience whom the FMA is presiding over. In comparison, the current government appears to have little hesitation in throwing larger sums of money into other sectors of the NZ community – perhaps demonstrating their (lack of) understanding of the significance of financial & capital markets.

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Lender Flt 1yr 2yr 3yr
AIA 4.55 3.55 3.89 3.99
AIA Special - 3.05 3.39 3.69
ANZ 4.44 3.29 3.45 3.85
ANZ Special - 2.79 2.95 3.35
ASB Bank 4.45 3.35 3.19 3.85
ASB Bank Special - 2.85 2.69 3.35
Bluestone 4.44 4.44 4.29 4.34
BNZ - Classic - 2.79 2.69 2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.39 3.29 3.59
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BNZ - TotalMoney 4.55 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 2.80 3.15 3.19
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
Credit Union South 5.65 4.75 4.75 -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
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Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.80 2.89 3.50
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 4.40 2.95 2.95 3.69
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Kiwibank 4.40 3.74 4.14 4.40
Kiwibank - Capped - - - -
Kiwibank - Offset 4.40 - - -
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Liberty 5.69 - - -
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Napier Building Society - - - -
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Pepper Essential 5.18 - 4.98 4.98
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Wairarapa Building Society 4.99 3.95 3.99 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
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Median 4.55 3.32 3.39 3.69

Last updated: 3 June 2020 3:56pm

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