SA’s financial services sector would fork out an additional R290m a year to fund the industry’s regulatory system, according to proposals from the National Treasury submitted to parliament.
Total proposed levies of R1.6bn exclude R548m proposed as premiums for the recently introduced deposit insurance scheme, that will provide some cover to depositors in the event of a bank failure.
DA MP Dion George expressed concern about the increased burden on already over-taxed citizens, but Ismail Momoniat, Treasury’s deputy director-general of tax and financial sector policy, emphasised the importance of sound regulation as part of international best practice. The cost to companies would be tax deductible, he added.
The new levies to fund the Prudential Authority and the Financial Sector Conduct Authority (FSCA) — both were set up in terms of the so-called Twin Peaks model of financial regulation — are proposed in two bills with parliament’s finance committee: the Financial Sector and Deposit Insurance Levies Bill, and the Financial Sector and Deposit Insurance Levies (Administration) and Deposit Insurance Premiums Bill.
The Prudential Authority and the FSCA were established in April 2018 and since then have been financed under the old model whereby the Financial Services Board imposed a licence fee on members and the Reserve Bank funded its supervision of banks from its own budget.
The FSCA is the market conduct regulator for the sector while the Prudential Authority, which falls under the Reserve Bank, regulates financial institutions and market infrastructures to promote their safety and soundness, and support financial stability.
Momoniat said that without the imposition of their own levies, the regulators would have been forced to approach the fiscus for funding. The regulators have been in transition since 2018 and the FSCA in particular has had to expand on its activities to comply with the expectations of the law.
He said a A balance had to be found between imposing too high a cost on the financial services sector and lower costs, which would lead to weaker supervision and more costs for customers, was important, Momoniat said.
“For regulation and supervision to be effective, intensive and intrusive, the industry must pay its fair share. If regulators are inadequately resourced, the cost is passed on to customers, individually through abusive practices (such as mis-selling and over-charging) and collectively through the failure of institutions,” Momoniat said.
“An efficient and effective regulation and supervision of financial institutions and markets minimises risk of market failures. A strong system of financial sector regulation ensures the protection of financial customers,” he added, while acknowledging that the cost of regulation would feed through to customers.
A total of R500m (including a R35m special levy for the first two years to cover initial costs) is proposed to be collected in levies for the Prudential Authority in addition to fees of R11m that will be collected from the industry. Banks will pay about R288m and insurers about R150m. The authority’s total operating expenditure is projected at R895m — an operating deficit of R385m which will be funded by the Reserve Bank.
The FSCA will collect a proposed R884m (including a special levy of R62m), with an additional R66m from fees, interest received and other income. Its total operating expenditure is projected at R967m, leaving a shortfall of about R18m which will be funded from reserves. The biggest contributors will be financial advisory and intermediary services (R257m), the pensions industry (R184m), insurers (R136m) and banks (R96m).
National Treasury emphasised that the proposed cost of prudential and conduct supervision is 1.7 times lower than the average of 0.05% of GDP for Australia, the UK, the Netherlands and New Zealand.
Hendrik Nel, the Reserve Bank’s deputy GM of the financial stability department, said premiums for the deposit insurance fund will amount to 0.2% of total deposits per year. In addition, levies will be paid to finance the Corporation for Deposit Insurance.
The fund will have a liquidity tier that will be funded by banks providing interest-bearing loans to the Corporation for Deposit Insurance to build up its reserves, especially during the first five years.
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