Fianna Fáil Finance spokesperson Michael McGrath has described Central Bank proposals to substantially increase the levy on financial institutions to cover the cost of its regulatory system as a potentially serious drain on the viability of independent financial advisors and brokers.
He was commenting on reports that regulatory levies are set to increase by 40%-45% this year as the Central Bank grapples with the costs of regulation generally and a deficit on its pension scheme of €285m. The largest increase in the Central Bank’s cost this year will be funding of its Defined Benefit pension scheme. This amounts to €29 million out of the Central Bank’s total cost of €137.4 million for financial regulation activity.
Levies are based on the size of a financial institution and the perceived riskiness of its business. €67m was collected in 2014 of which €40m was paid by banks, €15m by insurers and €11m by investment firms. Already, small size intermediaries have seen their levies increase substantially from €145 to €515 in the period 2011-2014. The proposed increase to €750 for the smallest size would bring this increase to 515%. The proposals are subject to approval by the Minister for Finance.
Ultimately the Central Bank is believed to want to move to a situation where by it recoups the full cost of its regulatory activities from the financial services sector. This could potentially lead to a doubling of levies.
Deputy McGrath commented: “Diversity is vital to the financial services sector. There are 2,800 financial intermediaries who provide advice and brokerage services to customers. There is a real risk that increasing costs of regulation, both direct and indirect, will force many of these out of business. The industry has already lost 1,400 brokers in the past five years. This trend can only result in the large financial institutions having an even more dominant position than currently exists. It is not in the interest of consumers and will lead to higher costs and lower investment returns.
“It is my view that the Central Bank pension scheme needs urgent attention. The scheme has gone from having a surplus of €51m in 2010 to a deficit of €285m in 2014. The actuarial loss incurred by the scheme was a staggering €184m in 2014.
“I would have to query why the Defined Benefit Scheme is still open to new entrants when similar schemes operated in the sector which the Central Bank regulates have closed to new members. The scale of pensions at the Central Bank is also a factor in the scheme’s difficulties. A parliamentary reply I received earlier this year indicated that the average pension for former NTMA staff was €82,296 in 2014.
“The Central Bank needs to be conscious that we all live in chastened times. A sound regulatory system does not necessitate runaway costs,” concluded Deputy McGrath.