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Review of financial sector levies.



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C115/02

29 October 2002

REVIEW OF FINANCIAL SECTOR LEVIES

The Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, today announced the terms of reference for the Review of the Financial Sector Levies.

Under current arrangements, the financial sector levies are set annually to cover the operational costs of the Australian Prudential Regulation Authority (APRA), and market integrity and consumer protection functions of the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO). They are paid by regulated financial institutions and generally levied as a percentage of assets held by each entity, subject to minimum and maximum levy amounts.

The Review will be chaired by the Treasury and undertaken jointly by Treasury and the APRA in consultation with ASIC and the ATO.

The Review's terms of reference are attached.

"The Review is required to evaluate the arrangements for the determination of levies that are imposed on the financial services sector to support the prudential regulation undertaken by APRA, ASIC and the ATO," Senator Coonan said.

"The Review will make recommendations on any changes that need to be made to the current arrangements.

"In reaching its recommendations, it will balance accountability, efficiency, transparency and equity with simplicity of administration and collection.

"It will also ensure that recommended options have the capacity to provide stable and effective funding for the regulator on a sustainable basis and to meet the evolving needs of prudential supervision into the future at a reasonable cost."

The Treasury and APRA will seek submissions from relevant industry groups shortly. These submissions will be used to help prepare a discussion paper that will form the basis for further extensive consultation.

It is envisaged that any changes arising from the Review's recommendations will take effect from the beginning of the 2004-05 financial year and that levies for the 2003-04 financial year will be established on the basis of the existing levy-setting arrangements.

ATTACHMENT A

TERMS OF REFERENCE FOR THE 2002-03 REVIEW OF FINANCIAL SECTOR LEVIES

Mission

The Review is required to evaluate the arrangements for the determination of levies that are imposed on the financial services sector to support the operations of the Australian Prudential Regulation Authority (APRA), and certain operations of the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO).

The Review is to be chaired by the Treasury and undertaken jointly by the Treasury and APRA in consultation with

ASIC and the ATO. It is to include a programme of consultation with industry and to ensure that all industry concerns are fully canvassed.

A written report of the Review is to be provided to the Minister for Revenue and Assistant Treasurer by 1 April 2003. This report will outline the principal advantages and disadvantages of the existing arrangements, identify other options and make recommendations with a view to any changes being implemented to take effect from the 2004-05 financial year.

Specifics

1. Supervision of regulated institutions in the financial services sector is to be paid for collectively by those institutions. In reaching its recommendations, the Review will balance accountability, efficiency, transparency and equity with simplicity of administration and collection. It will ensure that options have the capacity to provide stable and effective funding for the regulator on a sustainable basis and to meet the evolving needs of effective prudential supervision into the future at a reasonable cost.

2. The Review will examine concerns expressed by institutions and industry bodies arising from operational experience with the existing arrangements.

3. General matters that will need to be considered include:

whether factors other than cost of supervision in an industry sector over time (for example, risk management and stakeholder value at risk in the industry sector) should be taken into account in setting any industry levies; ●

the most appropriate basis for such a levy; and ● the relative merits of alternative systems for levying regulated bodies, such as:

the current system; ❍ other industry specific systems; ❍ a uniform levy arrangement; ❍ separate arrangements for diversified and specialised institutions; and ❍

arrangements specific to each institution (such as direct cost recovery). ❍

●

4. Specific matters that will need to be considered include:

whether total assets continue to be the most appropriate basis for determining relative levy shares amongst prudentially regulated institutions and what other options there may be; ●

the experience on fees for service and their role in future funding, including consideration of any relevant recommendations arising from the Productivity Commission's Review of Cost Recovery Principles to Government Agencies;

●

the relationship between the levies raised under current arrangements and the cost of supervision of particular sectors; ●

appropriate arrangements for reporting the costs of supervision on an ongoing basis; ● the desirability of levies being set annually, as at present, or for a longer period; ● the desirability of a maximum cap on the levy for particular institutions and, if a cap is deemed appropriate, how it should be set; ●

the appropriateness of the existing levy minima; and ● what legislative change might be desirable or necessary to implement different options and what transitional arrangements might be needed. ●

© Commonwealth of Australia 2000