AUS: Review Of Financial Sector Levies

MR 137/99

3 August 1999

MINISTER FOR FINANCIAL SERVICES AND REGULATION

The Minister for Financial Services & Regulation, Joe Hockey, today announced the terms of reference into the review of financial sector levies.

The review will be undertaken by the Treasury and the Australian Prudential Regulation Authority (APRA). The review's terms of reference are attached.

"The review is required to evaluate the current levy arrangements' ability to provide an effective funding mechanism for the supervision of prudentially regulated institutions," the Minister said.

"Recommendations will be made on any changes required to the current arrangements to ensure there is an efficient, equitable and durable funding mechanism capable of meeting needs well into the future."

The Minister said the present arrangements are based on levies imposed on specific industry sectors, while many financial institutions are moving towards becoming broad financial service providers rather than mono-line providers.

He said this development raised the question of whether the current arrangements would continue to be appropriate in the future.

The Treasury and APRA will seek submissions from relevant industry groups shortly.

These submissions will be used to prepare a discussion paper that will be the basis for further consultation. "This process should ensure industry has significant opportunity for direct input into the review," the Minister said.

"The timetable for the review is tight. The review will need to provide recommendations to me by early October 1999 in order to ensure any decisions to make changes can be reflected in legislation in time for the 2000-01 levies."

3 August 1999

ATTACHMENT

TERMS OF REFERENCE FOR REVIEW OF THE FINANCIAL SECTOR LEVIES

The Terms of Reference were announced by the Minister for Financial Services and Regulation on 3 August 1999.

Mission

The Review is required to undertake an evaluation of the current levy arrangements in terms of their ability to provide an effective funding mechanism for the supervision of prudentially regulated institutions*. Recommendations will be made on any changes that are required to the current arrangements to ensure that there is an efficient, equitable and durable funding mechanism capable of meeting needs well into the future.

Specifics

1.The Review will examine concerns expressed by institutions and industry bodies based on the operational experience with the existing arrangements. Issues that will need to be considered include: the present sectoral approach to cost recovery; the application of a levy on each licenced or authorised entity; the position of those entities which operate in more than one sector; and the different provisions regarding timing of payments for superannuation as compared with the other sectors.

2.The Review will recommend any changes to the current arrangements that might be considered necessary to provide a mechanism that meets the broad objective outlined above and is generally acceptable to stakeholders. In doing so, consideration should be given to the following factors: the scope for a uniform levy arrangement, bearing in mind the changing structure of the financial sector; the extent to which it is feasible to relate levy payments more closely to the level of supervision incurred; and the most appropriate basis for determining relative levy shares amongst prudentially regulated institutions.

3.The Review should also have regard to the capacity for APRA and ASIC to charge directly for services.

4.The scope of the Review does not extend to making recommendations regarding the appropriateness of the operational or other costs associated with supervision.

5.In carrying out its investigations, the Review may invite submissions and hold discussions with relevant industry bodies or prudentially regulated institutions or the relevant industry body.

6.The Review will consult with the Australian Securities and Investments Commission and the Australian Taxation Office.

7.A final report is to be provided to the Minister for Financial Services and Regulation no later than 8 October 1999.

* The cost of supervision of these institutions includes the operational costs of the Australian Prudential Regulation Authority (APRA) and consumer protection functions carried out by the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO). In the initial years, the levies also recover the establishment costs associated with APRA and ASIC.

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