The government has tipped an almost $5 million deficit for the Financial Markets Authority (FMA) in the current financial year despite an expected quadrupling in fee revenue.
In a just-released Statement of Performance Expectations (SOPE), the FMA forecasts a financial shortfall of more than $4.7 million over the 2019/20 fiscal year compared to an $803,000 deficit for the previous annual period.
The budget blowout comes in spite of a targeted revenue increase of $1.35 million for the FMA, fueled by a projected jump in industry levies from $539,000 last year to more than $2 million in this period as the Financial Services Legislation Amendment Act (FSLAA) licensing comes on stream.
According to the SOPE figures, total FMA expenses will hit almost $45 million this financial year, representing an increase of about $5.3 million over the 2018/19 figure.
Rising employee expenses – up almost $3.2 million year-on-year to total $28.6 million – account for much of the regulator’s cost over-run. Aside from a slight decline in litigation costs, all other FMA expense lines are also forecast to be higher in the latest reporting period.
The government held the FMA allocation steady at $36 million in its May budget, putting pressure on the regulator that is facing further responsibilities under FSLAA while still digesting the extra workload imposed by the recent bank/life insurer ‘culture and conduct’ reviews.
Overall, the SOPE shows the FMA has met – and expects to meet this year – the various qualitative annual targets set by the regulator.
However, the document reveals the FMA fell substantially short of target last year for its requirement that licensed market players “show how they achieve good customer outcomes”. On this measure, just under 48 per cent of licensed firms met the FMA standard against a target 75 per cent.
The regulator has almost halved its benchmark of success for this metric to a target of just 40 per cent of licensed entities able to prove they give good customer outcomes.
But the FMA forecasts that 52 per cent of firms this year will meet the standard that “assesses licensed market participants’ governance, systems, controls, processes and training related to achieving good customer outcomes, rather than the outcomes themselves”.
The SOPE – signed off by FMA chair, Mark Todd, and head of audit and risk committee, Elizabeth Longworth – says: “The estimates and associated assumptions are based on historical experience and various other factors believed to be reasonable in the circumstances. Actual financial results achieved for the period covered are likely to vary from the information presented, and these variations may be material.”