Advisers, brokers face high levies in 2025-26

The slow and steady increase in levies paid by supervised entities will continue in the 2025-26 financial year, per the latest Financial Sector Conduct Authority (FSCA) levies and fee proposal document, published end-October 2024. As the 6% hike for the 2024-25 year beds down, the regulator has already pencilled in 5% for the following year, taking the base amount for Category I and IV financial services providers (FSPs) to R4 006,80 and for Category III and IV FSPs to R8 347,50.

Frequent communication makes the fee hike more bearable

Financial and risk advisers may be muttering under their breaths over the constant creep of compliance costs; but they cannot criticise the FSCA for a lack of frequent and transparent communication. The regulator publishes granular detail around its budget and estimate of expenditures and levies, including how same are determined.  Cutting to the chase, the regulator relies almost entirely on the levies and fees it charges to the entities it regulates. For the financial year 2025-26 they are budgeting for gross revenue of R1.1 billion, and operating expenditure of R1.125 billion, resulting in a deficit of R25.297 million. 

The FSCA states, “Levies are a major contributor to our revenue and as such, the costs associated with the ongoing supervision and regulation of the financial sector are funded primarily from levies income.” Gross revenues are almost entirely made up of levies, reaching 92% in 2025-26, down from 94% in the prior year. The balance is made up of interest received (4%); fees (3%) and other income (1%). Levy income is charged to supervised entities based on different levy methods and formulae, and the invoices are generated annually or quarterly depending on the sector. PS, for the bulk of the FSPs in our readership, this amount is collected annually. 

One of the interesting charts accompanying the 2025-26 levies and fee proposal document gives insights into which segments of the financial services industry contribute the most to regulatory oversight. The Financial Advisory and Intermediary Services (FAIS) segment chips in with almost a third of the total, at 30%, followed by pension funds (21%), the insurance industry (19%), Collective Investment Schemes (11%), banks (11%) and exchanges and other (8%). The contribution split has been unchanged over the past three years, and the higher weight carried by intermediaries reflects the sheer number of licenced FSPs compared to banks, insurers, etc. 

Some ‘levies and fees’ basics

To flesh out this unpopular topic, your writer dived into some of the ‘levies and fee’ basics contained in the latest review, starting with the quantum of the increases. It turns out that the legislation follows somewhat of a lagged inflation methodology to set new levies. Per section 10(4)(b) of the Deposit Insurance Levies Act, levies must be increased by the arithmetic mean of the Consumer Price Index (CPI) as published by Statistics South Africa in the preceding calendar year. So, for the 2025-26 year, the starting point is the 6% CPI number published by Statistics South Africa for the 2023 year. 

Fortunately, section 10(4)(b) of the Act allows the Minister the option, “To determine that there must be no increase [in the levy amount] or an increase less than the reported CPI increase”. For 2025-26, the FSCA has opted for a 5% increase in line with its projected expenditure rather than this 6% maximum. The regulator took a similar approach in setting the 6% levy increase in 2024-25, versus a 6.9% aggregate CPI in 2022. There were also some interesting levy-related developments that go beyond the amount of levy payable to increasing the number entities under supervision. 

For example, the FSCA said it was approaching the Minister to include a range of financial entities into Paragraph 1 of Schedule 2, and Table B of Schedule 2. For completeness, these entities include: an external central counterparty as defined in section 1(1) of the Financial Markets Act; an external trade repository as defined in section 1(1) of the Financial Markets Act; an external credit rating agency as defined in section 1(1) of the Credit Rating Services Act; and foreign benchmark administrators. It is a mouthful, dear reader, that affirms the complexity and extent of South Africa’s financial services regulation. 

Interesting developments under benchmarks and benchmarking

“The insertion of the mentioned supervised entities is required to align the Schedule with categories of supervised entities that are regulated in terms of a financial sector law as contemplated in section 10(2)(d) of the Levies Act,” the FSCA writes. It also notes that, “The levies proposed to be imposed in terms of Table B on the supervised external entities are significantly lower than for domestic institutions due to the lesser degree of supervision required.” 

Another interesting happening is the recent proposal is that ‘provision of a benchmark’ be designated as a financial service, with draft regulations already published in terms of sections 3(3) and (5) and 288 of the Financial Sector Regulation (FSR) Act. According to the FSCA, these regulations are on track for promulgation in the 2025-26 financial year, meaning that ‘benchmark administrators’ will soon become supervised entities. 

The FSCA also shared a breakdown of its operating expenditure for the 2025-26 financial year. The conduct authority noted that the bulk of its R1.125 billion would be spend on staff. “Staff expenses represent 59% of the total expenditure budget which is attributable to the FSCA being a service organisation with personnel costs being the main cost driver; general expenditure decreases when compared to the previous year due to various cost savings measures,” the FSCA reported. 

Overall, lower than inflation

The fee-related parts of the latest update were far simpler. “Fee income contributes [just] 3% of the gross revenue as it is currently modelled around the user-pay principle; fee income relates to income charged to supervised entities to fund the performance of specific functions under the FSR Act and the relevant financial sector laws,” writes the FSCA. Fees are budgeted to bring in around R32 million in 2025-26 compared to the R31 million estimated in the prior year. 

To conclude, for 2025-26, the FSCA is seeking a 5% hike in levies, and no change in the fees charged. “The proposed increase of 5% to the levy rates translates to an overall increase of 7% to the overall FSCA levy when compared to 2024-25 budget, [with the difference being ] the result of new entrants and fluctuations in the levy data which are used to calculate levies,” the regulator said. 

Writer’s Thoughts:

The mechanism for determining FAIS levies means advisors and brokers face higher increases during periods of declining inflation. Are you comfortable with how FSCA levies and fees are calculated? And is the overall level of supervision-based levies and fees still manageable? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].

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