The financial services industry could see further annual regulatory levy hikes of almost $20 million under proposals tabled last week.
As outlined in a new Ministry of Business, Innovation and Employment (MBIE) consultation, the Financial Markets Authority (FMA) would require a further $18.8 million in funding by the 2025 fiscal year to manage the storm of legislation heading its way.
The FMA has already seen a huge budget expansion following the introduction of new financial advice laws with government allocations rising from about $36 million to $61 million by the 2022/23 tax period – with industry taking an increasingly large load of the cost via levy hikes.
But with three key pieces of legislation set to weigh on FMA resources, the regulatory budget could swell to almost $80 million by the 2025/26 year, according to estimates by Deloitte.
Most of the extra FMA costs would come via the Conduct of Financial Institutions (COFI) legislation – currently in a holding pattern in parliament – followed by the fast-moving Climate-related Disclosures (CRD) bill and the Insurance Contract law reform due to land next year.
The MBIE discussion paper offers two options for feedback with the extra maximum $18.8 million to be met either under status quo terms – 83 per cent by levy and the remainder from government coffers – or through 100 per cent industry funding.
“It is desirable for the FMA to be a credible conduct regulator that is sufficiently resourced, resilient and able to adopt a proactive, risk-based and systems-wide approach to regulation that includes contributing to wider government policy objectives, where appropriate,” the paper says.
Depending on the final scope of the law, COFI could add between about $10 million and more than $15 million to FMA expenses by the 2025 reporting period, MBIE says, while the climate disclosure and insurance laws would range between $1.1 million and $1.8 million apiece in annual regulatory costs.
According to MBIE, the COFI “regime represents a significant expansion in FMA’s remit by giving it direct oversight of the ‘entity-level’ conduct of these financial institutions and providing the FMA with formal supervisory and enforcement tools to support good conduct that comes with licensing”.
However, the COFI levy costs would potentially fall on 136 entities including 89 insurers, 27 banks and 20 non-bank deposit-takers, the paper says.
“This sector includes systemically important institutions that form part of the critical infrastructure necessary to support the wellbeing of the individuals, families and communities in New Zealand,” the MBIE document says. “The FMA and MBIE estimate that around 110 entities that provide services to retail clients may seek a licence under the CoFI regime. The licensed population under the CoFI regime has a number of large and complex institutions which will be challenging to regulate.”
The short FMA levy consultation period closes on November 7.
Meanwhile, the FMA signaled further patrols across the regulatory border following a crackdown on a wholesale investment advertising offer last week.
The FMA has limited powers over the wholesale investment market but slapped the Du Val property group with a direction order to withdraw “misleading” advertising under the ‘fair dealing’ provisions in the Financial Markets Conduct Act.
Paul Gregory, FMA director investments, said in a release: “We have become increasingly concerned about wholesale offers spreading into mainstream advertising, especially through social media, where the notion highly experienced investors are the target market becomes questionable. We expect entities relying on the wholesale exclusion to learn from this case and reflect on their own marketing practises.”
The regulator will publish its final guidance on financial product advertising this month with a stipulation that wholesale offers “should make it immediately and prominently clear that it is not suitable for retail investors”.
But the FMA also plans to step-up policing of the market outside its usual retail domain including the “industry-wide use of the wholesale exclusion and, in particular, if the “self-certification” exclusion is being used appropriately”.
FMA general counsel, Liam Mason, is due to assume the acting CEO role at the end of October, filling in a couple of months before incoming chief, Samantha Barrass, arrives on deck next January.
Current FMA head, Rob Everett, will take up the top job at NZ Growth Capital Partners – formerly known as the NZ Venture Investment Fund – at the end of January.