Consultation on FMA funding and levies

The Financial Markets Authority (FMA) has opened consultation on FMA funding options and levies.

The review will enable the FMA to regulate the new financial advice regime (which will start from 29 June 2020). It will also allow the FMA to respond to cost pressures within its current remit, as the FMA has expanded since the last funding review in 2016.

Both the media release and discussion paper are available online.

The consultation also follows ‘Financial Markets Authority Efficiency, effectiveness and baseline review’ published in December 2019. The report, available here, looked at the efficiency and effectiveness of the FMA and its funding needs.

Who needs to read it?  Why?

All market participants should be aware of proposed changes as FMA funding levels could affect the FMA’s regulatory activity in the financial markets sector.

The proposed changes to FMA levies will affect many market participants and would be particularly important for those involved in the provision of financial advice, to help prepare for the new financial advice regime.

What does it cover?

The discussion paper provides an overview of the FMA (and its evolving remit and current funding), outlines the FMA’s need for additional funding, presents the different funding options for the FMA, discusses the options for recovering FMA’s funding, and outlines proposed changes to the FMA levies paid by financial markets participant.

Specifically, the consultation seeks feedback on the following:

FMA funding options:

  1. Current spend – increasing FMA funding only for the bare minimum investment into implementing the new financial advice regime and continuing the current conduct and culture reviews.
  2. Base funding case – additional funding to enable a moderate increase of resources in key frontline areas of supervision, intelligence, enforcement and investigations, and investor/customer engagement. This would enable a move towards a portfolio based supervision approach as well as proactive engagement and action (rather than reactive intervention).
  3. Enhanced funding case – this is the FMA’s preferred option and would enable the FMA to broaden and deepen activity across its regulatory functions and involve a material uplift in the capability and capacity of the FMA, in addition to the increased activity of option 2.

Funding recovery options:

  1. Fully levy funded – the increase in the FMA’s appropriation would be met entirely from third-party levy funding.
  2. Crown and levy funded – the increase in the FMA’s appropriation would be met by a combination of Crown and levy funding, maintaining the current split of 25% Crown and 75% levy funding (reflecting the public and private good aspect of the FMA’s operations).

Changes to FMA levy:

  • The Ministry of Business, Innovation and Employment (MBIE) considers it appropriate to maintain the overall design of the current levy model, with some increases and decreases to the portion of the levy paid by certain levy classes.
  • A new ‘financial benchmark administrator’ levy class will be introduced to provide for the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Act 2019.
  • MBIE is considering whether it is appropriate to create a new levy class for growth market operators, as the licenced market operator levy under the current levy model may be seen as a barrier to entry.
  • MBIE is considering whether a new levy class or tier should be created for small listed issuers, as the current compliance costs may deter small companies from listing.
  • MBIE is posing to preserve the waivers currently in place for self-select schemes.
  • New FMA levy amounts are also proposed in the Annex of the discussion paper.

Our view

Increasing funding to improve the effectiveness and efficiency of the regulators is important for improving confidence in New Zealand’s financial markets. As the New Zealand Productivity Commission stated in its Regulatory Institutions and Practices issues paper August 2013 (p 32).

“Regulators must have sufficient funds to allow them (when operating efficiently) to undertake the functions necessary to achieve the outcomes sought by Parliament”.

The same paper refers to The Treasury’s 2012 publication ‘Preparing the annual report: Guidance and requirements for Crown Entities’ for the proposition that how regulators are funded (e.g. from the government’s consolidated fund, user pays, beneficiary pas, risk exacerbator pays) can impact the incentives they face. To promote objectivity and independence, regulators should be clear who pays for regulatory services, how much, and why.

Our view is that it will be important if the FMA funding is increased (which we think is generally desirable), that oversight measures are strengthened to ensure the funding is used efficiently and with appropriate accountability for outcomes.

What next?

Submissions close on Friday 28 February 2020 at 5pm.

The government expects that the new FMA funding and levies will be considered by cabinet in March/April, and finalised by July.

January – February 2020Consultation
28 February 2020Submissions close
February – March 2020Policy developed
March/ April 2020Cabinet consideration
July 2020New FMA funding and levies

If you have any questions on the consultation, the new financial advice regime, or would like assistance with submissions, please contact one of our experts.

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