Banks baulk at prospect of helping fund the Government's Financial Markets Authority

Banks baulk at prospect of helping fund the Government's Financial Markets Authority

By Gareth Vaughan

The country's banks are not thrilled at the prospect of being forced to help fund the Government's new super financial regulator, the Financial Markets Authority (FMA), which the man overseeing its establishment suggests needs double the budget of the the main entity it's replacing, - the Securities Commission. 

Clause 63 of the bill that proposes how the FMA will operate, the Financial Markets (Regulators and KiwiSaver) Bill, sets out plans to levy financial market participants to help fund the FMA and cover the costs of collecting the levy.  Different levies may be prescribed for different classes of companies and entities with levy rates to be determined by the Minister of Commerce.

Launched with the objective of restoring investor confidence in New Zealand’s financial markets after the collapse of dozens of finance companies and the global financial crisis, the FMA is expected to be up and running in April. 

The FMA will take on the existing regulatory functions of the Securities Commission and the Government Actuary, plus some powers from NZX, the Ministry of Economic Development  - including prospectus review and enforcement of governance laws that apply to financial markets participants - as well as the Minister of Commerce's exchange rule approval power.

In submissions to Parliament's Commerce Select Committee, which is considering the bill and is due to report back to Parliament on February 28, ANZ New Zealand, Westpac, Kiwibank and the banking industry's lobby group, the New Zealand Bankers' Association (NZBA), all raise concerns about the proposed levy.

The most strident response comes from ANZ, the country's biggest bank.

"ANZ New Zealand believes an industry levy to fund the FMA's operations cannot be justified and it is inconsistent with how other regulators are resourced."

State owned Kiwibank says it supports a levy on financial markets participants in principle to help fund a portion of the FMA's costs in performing and exercising its duties, powers and functions. Although the levy will be prescribed by regulations, Kiwibank suggests it ought to be calculated on a user pays basis. This would mean that the amount of the base rate levy would reflect the proportion of the FMA's time and resources each class of market participant takes up.

Banks 'shouldn't subsidise riskier entities'

Because higher risk entities will need closer monitoring and supervision,  Kiwibank argues they should be subject to a higher levy than lower risk participants like banks.

"A higher levy would act as a barrier to entry for higher risk market participants, and encourage existing participants to develop the processes and behaviours expected in order to bring the cost of their levy down," says Kiwibank.

"Importantly the bill should be amended to expressly require that any levy be designed to avoid high volume, low risk issuers such as registered banks subsidising other issuers."

Both Westpac and the NZBA - whose members include ANZ, the National Bank, ASB, BNZ, Bank of Tokyo Mitsubishi UFJ, Citibank, HSBC, JP Morgan, Kiwibank, Rabobank, SBS Bank, TSB Bank and Westpac - say any levy should not simply be targeted at those participants who are in a better position to afford to pay.

"Banks should be considered lower risk as they are subject to other regulators such as the Reserve Bank," the NZBA argues.

The banks raising concerns about being hit with fees to help support the FMA comes as they also face coughing up for new levies under the Financial Advisers Act and after they contributed the bulk of the NZ$468 million in fees Treasury expects to receive for the two year life time of the Crown retail deposit guarantee scheme. ASB revealed in a General Disclosure Statement that alone had paid NZ$36.8 million in retail deposit guarantee scheme fees.

Although the banks paid the bulk of the fees, it was eight finance companies, topped by demise of South Canterbury Finance which left the taxpayer with a tab for the thick end of NZ$2 billion, that collapsed whilst covered by the Crown guarantee.

Banks, haven't, however, escaped the wrath of regulators, investors and customers in recent months.  In the biggest monetary settlement obtained by the Commerce Commission, ANZ agreed last June  to pay NZ$45 million compensation to thousands of people who invested in two funds marketed by ING (now ANZ subsidiary OnePath) and ANZ after an investigation into alleged breaches of the Fair Trading Act through the marketing and promotion of the funds.  And in November the Banking Ombudsman reported receiving a record number -  1924 - of complaints in the year to June 2010.

Meanwhile, citing an interest.co.nz Double Shot interview with Simon Botherway, the chairman of the FMA Establishment Board, Kiwibank suggests the Government ought to lift taxpayer funding for the FMA from levels received by the Securities Commission.

Botherway said that although the FMA had a “very good” chance of improving regulatory outcomes, much would depend on its budget. He estimated it would need about double the NZ$15 million annual budget of the Securities Commission.

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I'm with the banks on this one....  its a type of user pays, but it does compromise the independence of the FMA in some ways by having the very people it is regulating also paying a big chunk of its costs - you will have seen the uproar over the fee increase imposed by the new Real Estate authority...  

But it is not only the banks that will have to pay - anyone providing a financial product or advice will also have to pay...  from the banks all the way down to the 1 person shop.

A far better model is to have some form of cost recovery for true 'out of pocket' expenses, say for the Rulings Panel, but have the FMA almost totally funded by the Govt.  This keeps the regulated and the payer in separate boxes...

Fuly agree on this. The more risky the finanical company the more they should have to pay.

Well bugger me .. what a stupid question .. these regulatory bodies (the ones being taken over) owe a huge debt to society for their failures over a VERY long time .. in the meantime why not privatise it, float it on the NZX with an IPO and let them survive on the fines and penalties and proceeds from court cases .. and while they're at it send an annual $1bn invoice to the Government for reparation monies for past injustices. How's that for independence and seperation of powers. This is an example of "how to write failure out of the history books". Don't fix it. Just change its shape and pretend they never existed.