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You are here: Home / Investment News / Govt to increase industry levy weight above 80%

Govt to increase industry levy weight above 80%

August 2, 2020

Kris Faafoi: Commerce Minister

Industry share of Financial Markets Authority (FMA) funding will rise to more than 80 per cent by 2022 under changes released by government last week.

Historically, government aimed to recoup just 75 per cent of FMA operating costs through levies but the just-published Cabinet paper shows the industry-funded proportion would ultimately jump by 8 per cent as the regulator’s budget increases more than half over the next two years.

“With the fully phased-in increase in the FMA’s funding and the Crown’s contribution, the new split of the FMA’s operational funding will be approximately 17 per cent Crown and 83 per cent levy from 2022/23 onwards,” the Cabinet paper says.

As reported earlier, the FMA budget increased by almost $10 million in the current fiscal year to $48.5 million but will ratchet up to almost $61 million to cover its wider regulatory ambit, including oversight of the imminent new financial adviser regime.

“In recent years the FMA has faced an expansion of its regulatory remit and broader cost pressures,” the Cabinet document says. “Accordingly, on 6 April 2020, Cabinet agreed to increase the FMA’s appropriation over three years to $60.805 million by 2022/23 and out years. Cabinet agreed that the majority of this increase –$23.501 million per annum by 2022/23 – will be funded via an increase in the existing levy on financial service providers.”

However, the paper suggests the FMA budget may require further top-ups in coming years as the current funding round does not cover any extra regulatory responsibilities that could arise from the upcoming “climate-related financial disclosures regime or the conduct of financial institutions regime”

The Cabinet paper also confirms the rate of financial adviser levies (due to kick in when the new regime starts next March) and how costs will be distributed across other industry sectors over the following two years.

For example, the final figures show the top-tier annual FMA levy for licensed investment schemes with $15 billion or more under management will peak at $670,000 by the 2022/23 period – up from the current $460,000 (which applies to those with $10 billion plus this year).

From the 2021/22 fiscal year, the licensed investment scheme manager top-tier levy group divides in two – $10 billion to less than $15 billion, and $15 billion or more. As of next year, the FMA levy scale also splits the existing $100 million to $500 million band into two tiers.

Overall, licensed investment managers will contribute just under 20 per cent of the total FMA levy, the paper shows. Company registrations represent the largest proportion of the levy pool (almost 25 per cent) followed by banks (close to 13 per cent), financial advice (11 per cent) and insurers (10 per cent).

The financial advice component is split between an annual fixed levy for registered financial service providers that are advisers ($300 per year rising to $400 over time) and those that are financial advice providers ($260 increasing to $340).

Financial advice providers (FAPs) must also pay an extra annual fee ($220 rising to $300) for each ‘nominated representative’ under their charge. FAPs that also give advice on their own account face a further annual $880 levy, which hits $1,180 by the 2022/23 tax year.

In a nod to the COVID-19 economic disruption, government extended the FMA funding increase period from the original two-year period to three years.

The Cabinet paper, signed off by Commerce Minister Kris Faafoi, says: “The revised proposals also take into account the fact that the Government decided to slow the pace of regulatory change for the financial services sector in response to COVID-19. This will relieve the FMA of some immediate resourcing pressure, but work on upcoming regulatory reforms and implementation will still need to continue, albeit at a slower pace.”

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