FSPs will pay significantly higher levies if the Financial Sector and Deposit Insurance Levies Bill is passed into law in its current form.
The Minister of Finance introduced the bill and the Financial Sector and Deposit Insurance Levies (Administration) and Deposit Insurance Premiums Bill in the National Assembly on 20 January.
The bills provide for the imposition of levies on the financial sector to fund the Prudential Authority, the FSCA, the Financial Services Tribunal, the Financial Ombud Schemes Council, the statutory ombuds, and the Corporation for Deposit Insurance.
The Corporation for Deposit Insurance will administer the Deposit Insurance Fund, which is designed to protect the bank deposits of financial customers.
Banks, co-operative banks and mutual banks will also have to pay a deposit insurance levy to the fund.
Financial entities will pay a levy and, for two years, a special levy to either the Prudential Authority or the FSCA.
Apart from the FSCA levy and the FAIS Ombud levy, FSPs will also pay new levies to fund the Financial Services Tribunal and the Financial Ombud Schemes Council.
The special levy will be imposed in the two years immediately following the date on which the Act takes effect, to fund establishing the Twin Peaks regulatory structure.
For entities that fall under the FSCA, the special levy will be 7.5% of the “normal” annual levy paid by the supervised entity.
Schedule 1 of the Financial Sector and Deposit Insurance Levies Bill sets out how the levies will be calculated for entities regulated by the Prudential Authority, while Schedule 2 provides the formulae for entities regulated by the FSCA. Schedule 2 entities include FSPs.
How much more will FSPs pay?
A comparison of the levies that were announced for 2021 with those in Schedule 2 of the Bill shows that:
- The FSP levy for Categories I and IV increases from R3 792 to R4 000, a 5.49% increase.
- The FSP levy for Categories II, IIA and III goes up from R7 642 to R8 000, a 4.68% increase.
- The FSP representative levy increases from R605 to R620, or 2.48%.
- The FSP representative levy for Category A increases from R250 to R280, or 12%.
- The levy on funds under management goes up from 0.0000184595% to 0.0000185950%, a 0.73% increase.
- The FAIS Ombud FSP levy decreases from R1 172 to R1 100, or 6.14% lower.
- The FAIS Ombud FSP representative levy increases from R447 to R690, an increase of 54.36%.
In addition, FSPs will pay the following levies:
- Financial Services Tribunal levy: 2.5% of the FSP levy (including representatives and key individuals); and
- Ombud Council levy: 2.5% of the FSP levy (including representatives and key individuals)
(And don’t forget the 7.5% special levy for two years.)
The following examples show that the new legislation will result in a sole-person FSP paying 12.61% more in levies compared with 2021, while an FSP with 10 key individuals and representatives will pay 29.9% more.
In terms of the Bill, the number of representatives will no longer be calculated as at 31 August of the levy year. It will be calculated using the average total number of key individuals plus the average total number of representatives, calculated over the period 1 September of the preceding levy year to 31 August of the levy year. A key individual who is also a representative is counted once only.
There are links at the end of this article to the tables that set how the levies payable by FSPs will be calculated.
Apart from FSP Categories I and IV, I and IV (financial products long-term insurance sub-category A and/or Friendly Society Benefits only), II, IIA and III, the tables include a category “FSP (Other)”. It is unclear which type of financial products this category covers.
The Bill states that the levies must be increased by the arithmetic mean of the Consumer Price Index in the preceding calendar year, unless the Minister of Finance decides there will be no increase or an increase less than that annual rate of increase.
When asked for comment on aspects of the Bill, the Financial Intermediaries Association of Southern Africa said it would provide Moonstone with a copy of its submission to National Treasury once it has been made. Treasury is accepting comments on the legislation until Monday, 7 February.
FSPs can apply for an exemption
The Financial Sector and Deposit Insurance Levies Bill provides for entities to apply for an exemption from the levy, the special levy or the deposit insurance levy for a levy year or a part of a levy year. However, the following conditions must be met for an exemption to be granted:
- The exemption will alleviate undue financial or other hardship or prejudice to the supervised entity or member, or financial customers due to circumstances outside the control of that supervised entity or member;
- It is not contrary to the public interest;
- It is necessary for:
- developmental, financial inclusion and transformation objectives to facilitate progressive or incremental compliance with the Financial Sector Regulation Act or a financial sector law; or
- other reasons that may contribute to the achievement of the objects of Financial Sector Regulation Act; and
- The exemption is necessary to facilitate the affordability of the financial sector levy, the special levy for the supervised entity, or the affordability of the deposit insurance levy for the member.
The administration bill
The Financial Sector and Deposit Insurance Levies (Administration) and Deposit Insurance Premiums Bill provides for:
- The collection and administration of levies imposed in terms of the Financial Sector and Deposit Insurance Levies Bill;
- The amendment of the Financial Sector Regulation Act to provide for the administration of levies imposed in terms of the Financial Sector and Deposit Insurance Levies Bill
- The imposition, collection and administration of deposit insurance premiums;
- The amendment of the Pension Funds Act, the Banks Act, the Mutual Banks Act, and the Financial Advisory and Intermediary Services Act to align these laws with the Financial Sector Regulation Act in respect of the financing of financial sector bodies.