By Gareth Vaughan
The country's major banks are bristling at the prospect of being forced to pick up the lion's share of the tab for the government's proposed levy to help fund its new financial markets regulator, the Financial Markets Authority (FMA), arguing the levy should be spread more broadly as ANZ New Zealand alone faces an annual NZ$800,000 bill and the banks' primary regulator is the Reserve Bank.
Launched in May in place of the Securities Commission and also taking on some regulatory powers from other bodies such as the Registrar of Companies, Government Actuary and NZX, the FMA has been tasked by the government with restoring "ma and pa" retail investors' confidence in the capital markets after the demise of dozens of finance companies over the past five years.
Commerce Minister Simon Power announced in April that the FMA would receive funding of NZ$24 million for the 2011/12 year with this coming from a combination of taxpayer/government funds and levies paid by market participants such as financial advisers and banks.
A Ministry of Economic Development discussion document on proposed fees and levies encompassing the FMA, new auditor overseer the External Reporting Board, the Companies Office, and Insolvency and Trustee Service, suggests NZ$3 million needs to be collected through an FMA levy in the 2011/12 year, rising to NZ$9.2 million in 2013/14. This comes alongside the introduction of a Financial Advisor Act (FAA) levy forecast to collect NZ$6.4 million in the 2011/12 year, on top of FAA fees which are already in place and totaled NZ$2.2 million in 2010/11.
There'll also be smaller fees and levies for trustee and auditor oversight. The government says the levies are expected to apply from February 1, 2012.
However the banks, led by the New Zealand Bankers Association (NZBA) and ANZ, argue the MED's preferred option - with the FAA levy on Registered Financial Advisers (RFAs), Authorised Financial Advisers (AFAs), Qualifying Financial Entities (QFEs) and the advisers they're responsible for, plus a FMA levy on either financial service providers and certain issuers, would hit them too hard. Instead, the banks say, the levies should be spread more widely to drag in other businesses who will reap more benefit from the FMA's creation. (See more on RFAs, AFAs, QFEs and the new financial advisers regime here).
Banks have lots of financial advisers & face a big tab for them
ANZ, incorporating the ANZ and National banks, UDC Finance, One Path and Direct Broking, is the country's biggest financial institution. It says the MED proposal disproportionately targets banks based on their ability to pay and doesn't take into account the fact that the prudential regulation of banks is overseen by the Reserve Bank, from which the banks derive their primary regulatory benefits.
"Regulation by the FMA is much broader in its focus and therefore ought to be funded by a broader range of participants," ANZ's head of governance Tamara McDonagh argues in the bank's submission.
McDonagh says the MED's preferred levy option would cost ANZ about NZ$800,000 a year and that this is more than five times the maximum limit MED initially thought it proposals would cost any individual bank.
"In ANZ's case we currently have 61 category one QFE advisers and approximately 5,300 category two QFE advisers," McDonagh says. "Under MED's current proposal ANZ's annual levy cost would therefore be circa NZ$800,000."
In his submission NZBA policy adviser Walter McCahon says the NZBA's larger member banks face FAA-FMA levy induced costs of several hundred thousand dollars and even the smaller banks face bills of several tens of thousands of dollars a year.
McCahon says although NZBA member banks, including the big four, Kiwibank, Rabobank, SBS Bank and TSB Bank, recognise they need to pay a "reasonable" share of the new levies, an FAA-FMA combined levy apportioned according to the benefits derived from the new regime, rather than based on raw numbers of advisers, would be fairer. This could see not just finance adviser businesses, but also product providers, issuers, credit providers, insurers, fund managers, share brokers and stock exchange operator NZX, contributing more.
"This type of levy applied to different categories of registered market participants is likely to be more principled than an FAA levy based on number of advisers, and will also allow better identification of market participants," McCahon argues.
He says the MED's preferred option is unworkable in practice and banks are hit via their branch and call centres because these include thousands of category two QFE advisers.
'Incentive to avoid giving advice'
McCahon goes as far as suggesting the MED's preferred levy charging option would create a "significantly distortionary incentive" for big institutions to minimise financial advice or even to move to an "information only" model.
"The removal of basic advice about call accounts and term deposits (in the case of banks) will be to the detriment of investors and savers looking for the right account," McCahon says. "Furthermore, this incentive to avoid giving advice will eventually erode the funding base of the levy system, as advice is phased out," he says.
"This happened to the Real Estate Agents Authority which initially levied on a per agent basis."
And McDonagh points out ANZ is already New Zealand's largest taxpayer.
For its latest completed financial year, to September 30, 2010, ANZ made a profit of NZ$867 million and paid income tax of NZ$340 million. See more on ANZ's annual result here. In December 2009 ANZ, plus the other big three Australian owned banks ASB, BNZ and Westpac, agreed to cough up NZ$2.2 billion between them to settle a long running dispute with the Inland Revenue Department over alleged tax avoidance through the banks' use of structured finance transactions.
Meanwhile, in its submission the BNZ points out that given all New Zealand companies will benefit from a well supervised financial market, including through lower cost of capital and improved access to capital, it could be justifiable as an interim measure to apply a combined FAA-FMA levy to all companies to reduce risk of distortion or arbitrage. BNZ corporate lawyer Paul Hay argues whilst this interim system is in place, a more sustainable and long-term plan based on a tiered model - as proposed by the NZBA - could be developed and put in place.
This would see financial market participants pay a combined FAA-FMA levy determined by the activities they undertake in the market. Rules would be put in place to cover situations where a single entity sits in multiple categories.
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