Fees bonanza as FSB pushes through inflation plus hike

The Financial Services Board (FSB) is a self-funding non-profit organisation that gets no assistance from Treasury. Instead it turns to the very companies and individuals it regulates to meet its funding needs. In terms of Section 16 (1) (b) of the Financial Services Board Act, the Financial Services Board (FSB) is entitled to charge and collect an annual levy from all licensed Financial Services Providers (FSPs) to cover its operational expenses.

Last year the FSB incurred the wrath of many independent intermediaries when an administrative error resulted in a blanket letter of demand being sent regardless of whether intermediaries’ levies were outstanding or not. But 2010 is going to be different. On Friday 28 May 2010, Gerry Anderson, Deputy Registrar: Financial Services Providers at the FSB issued a lengthy letter explaining the need for levy payments from all regulated entities and giving notice of an inflation plus increase in the base FAIA levy.

Understanding FAIS Levies

The FAIS department exists on levies collected from FAIS-authorised FSPs. “In accordance with long-established FSB policy, cross-subsidisation of expenditure by the different divisions within the FSB does not take place,” writes Anderson. “In other words, pension funds levies are utilised for the regulation and supervision of pension funds, likewise levies raised from insurers, collective investment schemes or financial markets are utilised for the costs incurred in the ongoing regulation and supervision of these sub-sectors.”

The FAIS levies are charged annually, at the end of September. Anderson notes: “The 2010 levy invoices will be mailed by 30 September 2010 and will be payable by no later than 31 October 2010.” Each and every FSP recorded at the Registrar’s office as at 31 August 2010 is legally obliged to pay the levy. And FSPs have to pay the annual levy if they wish to retain their licence, whether they are trading or not. Anderson requested that all FSPs check and update their records before 31 August 2010. To do so you must:

· Update your representative register on the central register.

· Inform the FSB in writing if you have discontinued your business, merged with another company, work for somebody else and stopped doing business and would like to cancel your license.

· Where applicable, ensure that you have submitted the correct total value of investments under management, should you be an investment manager or LISP (Category II or III FSP).

And the bad news is

It seems the FAIS fees and levies are no longer sufficient to cover the FSB’s operating costs. “Since the coming into operation of the FAIS Act on 30 September 2004, the base levy constituent of the total levy per FSP has deliberately been maintained at below cost in an endeavour to assist smaller FSPs,” maintains Anderson. They have decided to adjust the base in order to reflect the actual minimum costs incurred by the FSB in its supervision of the FAIS Legislative framework. The base levy component of the FSB FAIS Levy will therefore increase by 25% in 2010!

The 2010 FSB FAIS Levy for category I and IV FSPs is calculated as follows: A basic levy of R2 550.00, plus R400.00 for each key individual, plus R400.00 for each representative, to a maximum of R1 110 000. For Category I FSPs (rendering financial services only in connection with financial products belonging to long-term insurance Category A) the amount for each representative and key individual reduces to R200. The 2010 FSB FAIS Levy for Category II, II A and III FSPs is set as follows: Basic levy of R5 138.00, plus R400.00 for each key individual, plus R400.00 for each representative, plus 0.0000139546 of total value of investments managed, to a maximum of R1 017 000.

FSPs must also pay a FAIS OMBUD Levy. In 2010 the basic levy of R581.00, plus R218.00 for each Key Individual, plus R218.00 for each representative, with a maximum of R158 270.00 applies. The FSB has been deregistered for VAT purposes and VAT is thus not paid with regard to these levies! “Section 22 of the FAIS Act determines that the Office of the FAIS Ombud must be funded by the FSB. The FAIS Ombud levy is ring-fenced for control purposes,” notes Anderson. The FSB sends a separate invoice for the FAIS Levy and FAIS Ombud Levy.

Not everyone is happy!

The increase spells be bad news for smaller financial intermediaries whose levy will increase by close to the full amount. “We understand there is a cost to doing business, but we look for reasonableness and fairness in the application of levies and also seek ways in which to limit the increasing costs of compliance,” says Ian Middleton, managing director at Masthead. The broker representative body has already addressed certain concerns to the FSB.

The first is with the level of the increase. “The basic levy is going up multiples higher than inflation,” observes Middleton. “The smaller FSP will feel a more drastic and negative impact because the smaller FSP does not have the ability to spread the basic cost in the same way that a large FSP does.” He also raised concerns over the long-term viability of a base levy spread over a reducing number of FSP licences: “The number of licensed FSPs has reduced over the last year, thereby reducing the base from which to recoup. In the short term there will be a further exodus of independent FSPs, further reducing the base.” In other words – above-inflation levy increases could become the norm. “Smaller FSPs will have to consider ways to manage or reduce these fees,” says Middleton. Do you really need more than one FSP? Do your need all of your staff (especially admin staff) registered as advisers/reps? Etc.

Anderson’s parting thoughts offer precious little consolation to smaller FSPs. He observes that the levy amount paid by you to the FSB is a tax deductible expense. He also promises that the FSB will endeavour to keep their expenses down to a minimum and keep the base levy amount as low as possible (we assume he means in future considering this year’s 25% hike). The FSB’s accounts are open to public scrutiny and published in the group’s Annual Report.

Editor’s thoughts: The FSB has come under fire for their account administration in recent years. This year it seems they’re intent on smoothing over the invoicing hiccups of the past. Have you received the 28 May 2010 correspondence from the FSB? And are you happy with the 25% increase in the base levy? Add your comment below, or send it to gareth@fanews.co.za