FSC chief on "bad outcome" from Budget 2022

FSC chief on "bad outcome" from Budget 2022 | Insurance Business New Zealand

FSC chief on "bad outcome" from Budget 2022

Through Budget 2022, the government is raising the annual operating funding of Crown entity Financial Markets Authority (FMA) – a move that, while on the one hand is positive, is seen by Financial Services Council of New Zealand (FSC) chief executive Richard Klipin (pictured) as not a good outcome.

According to the 171-page Wellbeing Budget 2022: A Secure Future that was released last week, funding will be provided to the FMA to implement and oversee the new Conduct of Financial Institutions (CoFI) regime, as well as to monitor and enforce compliance with the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 (CRD).

As announced by the Ministry of Business, Innovation & Employment (MBIE), the adjustment will be from $60.805 million to $76.401 million in 2025/26. The goal is to enable the FMA to take both a proactive and responsive approach to monitoring and enforcing the abovementioned reforms.

The agency noted: “As part of the new funding arrangement, the government has agreed to set new industry levies following consultation last year. The levy increase will be phased in over four years to minimise the burden on the financial sector. The levies have also been apportioned by entity size and type, to ensure smaller entities are not unduly burdened with high costs.”

Exclusive of GST (goods and services tax) and effective from September 01, below are the levies for registered financial service providers (FSPs) that are licensed insurers and required to hold a conduct licence:

Type of levy

New 2022/23 levy

New 2023/24 levy

New 2024/25 levy

New 2025/26 levy

Annual gross premium revenue exceeds $1 billion

$675,000

$745,000

$850,000

$960,000

Annual gross premium revenue exceeds $500 million but
not $1 billion

$494,000

$534,000

$615,000

$660,000

Annual gross premium revenue exceeds $250 million but
not $500 million

$179,000

$195,000

$218,000

$234,000

Annual gross premium revenue exceeds $100 million but
not $250 million

$123,000

$130,000

$148,000

$158,000

Annual gross premium revenue exceeds $50 million but
not $100 million

$63,000

$66,000

$73,000

$80,000

Annual gross premium revenue exceeds $10 million but
not $50 million

$23,000

$23,900

$26,000

$27,000

Annual gross premium revenue does not exceed $10
million

$6,040

$6,150

$6,400

$6,600

 

The levy changes for climate-reporting entities, as well as for FSPs that are registered banks or licensed non-bank deposit takers, have also been set out. The new levies for CoFI will be collected by the Companies Office as part of the annual confirmation filing on the Financial Service Providers Register, while the levies for CRD will temporarily be collected by the FMA via an invoice.

Klipin told Insurance Business: “What we’ve seen is the FMA funding and budgets will increase significantly; what we haven’t seen is the Crown’s contribution increasing proportionately. More of the weight of funding the FMA is going to sit with the regulator. Our view is this is a bad outcome. This is not a good outcome.”

According to MBIE, the Crown’s contribution will, in fact, fall.

“Currently,” highlighted the ministry, “the majority of the FMA’s funding is recovered from market participants through the FMA levy (83%), with the Crown contributing the remaining 17%. The proportion of the Crown’s contribution is decreasing slightly to 16% from 2025/26.”

For the FSC CEO, this shouldn’t be the case.

“The government needs to fund the regulator, because the FMA is a really important part of our system,” asserted Klipin. “[The FMA] needs to be properly funded; it deserves to be properly funded. But the Crown needs to step up and participate in that process in a more significant way than what we’ve seen.

“We’re comforted by the increase but concerned that the private sector is going to have to bear more of the cost, more proportion of the cost than previously, and that’s obviously one for ongoing discussion.”

Due to the expanding legislative remit of the FMA, its funding was reviewed last year. Decisions to change the levies for CoFI and CRD were made in April 2022, while decisions about funding for the Insurance Contract Law regime will be made at a later date.

MBIE previously stated: “As the financial markets conduct regulator, the FMA plays a critical role in ensuring that businesses, investors, and consumers can confidently participate in financial markets. An appropriately resourced regulator helps set the conditions needed for New Zealanders to have the confidence to invest in financial markets, and to access capital to grow and support our economy.”

While Klipin will agree with the above, he believes the Crown should be increasing its share of the funding, instead of the contrary.