The Ministry of Business, Innovation and Employment (MBIE) says the FMA is expecting to gain $1.2 million in licensing fees from financial advisers as they apply for FSLAA licenses under the new regime, according to a new discussion document.
MBIE noted that the FMA incurred a “small operating deficit” of $172,000 in 2018/19, and is expecting a further deficit of around $4 million in 2019/20. This has been attributed to the increased cost of staff to support the ongoing conduct and culture reviews and preparation for the new financial advice regime, which has involved “significant market engagement,” development of licensing models and building a full IT system.
MBIE says the FMA has not received any additional funding to help with the cost of the new financial advice regime, or the conduct and culture reviews, and that the FMA has occasionally had to divert resources from other areas.
“Partially offsetting the deficit in financial year 2019/20, the FMA expects approximately $1.2 million of licensing fee revenue as part of the licensing of financial advice providers,” MBIE explained.
“This income will cover the cost of processing licence applications and the ICT system build for the new licensing system.”
MBIE says that its review of the efficiency and effectiveness of the FMA has shown that it is doing its job well, but is underfunded and needs more resources.
“The independent review found that the FMA is a high performing organisation with good alignment between its activities and its main statutory objective,” it stated.
“It also found strong indicators that the FMA uses its resources effectively and efficiently. However, the review noted that the FMA is not right-sized (i.e. its financial resources are constrained and do not support its operations or activities) and that as a result the FMA has a number of organisational pressure points.”
In terms of funding options, the document makes three suggestions: increasing the FMA’s current spend by $9.2 million, which would allow it to make “the bare minimum” investment into the new financial advice regime, a base funding option to include an additional $20 million in funding per annum, and an enhanced funding option to provide an additional $24.8 million in funding.
“Option 3 is the FMA’s preferred option, as it considers that it delivers more benefit in several areas over and above the base funding option and also offers better value for money,” MBIE explained.
“In addition to the increased activity of option 2, this level of funding would enable the FMA to further broaden and deepen activity across the spectrum of regulato