Our flawed FSP Levy system

It costs money to give financial advice in South Africa, even for a 1-person organisation like ours which gets hardly any revenue from it, we have to pay R4365 to the Financial Services Board (base amount of R3635 plus R730 per key individual or representative we employ). There are far worse regulatory issues in our financial services industry (see notes on strengthening retirement savings & regulation 28), but the system of collecting fees is also flawed:

How to fix the system

The fix is to set the levy as a percentage of the net profit arising from the rendering of financial services. This would mean that those entering the industry only pay levies to the extent that they are generating profit, removing the disincentive for hiring more people or starting a business; and for good samaritans who aren't in it for the money.

Letter from the FSB

Here's the letter the Financial Services Board sent to us regarding 2012 FSB levies we must pay:

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ENQUIRIES:

FAIS Registration/Contact Centre

D. DIALLING NO.:

0800110443/0800202087

OUR REF:

Levies 2012 - Reminder

FAX:

(012) 422 2973

DATE:

2 June 2012

E-MAIL:

faispfc@fsb.co.za

ANNUAL FINANCIAL SERVICES BOARD LEVIES IN RESPECT OF FINANCIAL SERVICES PROVIDERS: 2012

This letter is being sent to all Financial Services Providers (FSP’s) who were in possession of a Financial Services Providers (FSP) licence on 31 August 2011 (and were invoiced to pay the 2011 levy during October 2011) as well as to new FSP’s who received their licences during the period 1 September 2011 to 31 August 2012. The last-mentioned will be levied for the first time during September 2012.

The principles behind the payment of levies by all regulated entities are as follows:

In terms of section 16 (1) (b) of the Financial Services Board Act, 1990, the operational costs of the Board are funded by levies and fees. Levies form by far, the largest part of this funding. The Board does not receive any funding from the fiscus and in this way, is self-funding. It is also important to note that the Board is a non-profit organisation and over-recovery of levies per Division (such as the Financial Advisory and Intermediary Services [FAIS] Division) is repayable to the levy payers.
Levies are raised against regulated entities in terms of section 15A of the Financial Services Board Act.
In accordance with long established FSB policy, cross-subsidisation of expenditure by the different Divisions within the FSB, for obvious reasons, does not take place. 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. In this way we operate within our own cost centres and each sub-sector e.g. FAIS, is funded by the entities falling within that sub-sector (in the case of FAIS-authorised FSP’s).
a. When planning for the levies payable by FSP’s, it was decided that such levies will be levied once annually and that the levy run would take place at the end of September of each year.
The (2012) levy invoices will be mailed by 30 September 2012 and will be payable by no later than 31 October 2012. Please note that all authorised FSP’s, in other words active FSP’s on record at the Registrar’s office as at 31 August 2012, will be legally liable to pay levies.
Licensees with licenses which are suspended/withdrawn on 31 August 2012 and have their licenses reinstated thereafter, will also be invoiced for the 2012 levy period in full.

It is important for you to do the following before 31 August 2012:
Update your representative register on the central register (all enquiries relating to representatives register must be emailed to moses.mthimunye@fsb.co.za and shebhambhalane.lebese@fsb.co.za);
Inform this office in writing if you have discontinued your business, merged with another company, work for somebody else and stopped doing business and would like to lapse your licence (all lapse requests must be e-mailed to genevieve@fsb.co.za).

PLEASE NOTE THAT IF YOU WANT TO KEEP YOUR LICENCE AND YOU ARE NOT OPERATING, YOU ARE STILL LIABLE TO PAY THE ANNUAL LEVY.

It is also important to notify this office in writing if you have a license as a sole proprietor and hold another FSP license in the name of a company [(Pty) Ltd] and you would like the sole proprietor license to be lapsed.
No license automatically lapses unless you notify the Registrar in writing.
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, IIA or III FSP);

6. The base levy component, as illustrated below (only with regard to the FSB FAIS levy) has increased by 8% in 2012. The percentage increases in other levy components (including that of the Office of the FAIS Ombud and key individual/representative) are 8% and 10%, respectively. Although staff costs, which form the major component, increased above this rate from 2011 compared to 2012 in line with market rates, the Division has kept its levy increase to the minimum.

7. The levy invoices to be raised at the end of September 2012, will be calculated as follows:

Category I and IV FSP’s:
A basic levy of R2 960, plus R473 for each key individual, plus R473.00 for each representative, to a maximum of R1 282 744;

Category I FSP’s (Who renders financial services only in connection with financial products belonging to long-term insurance Category A):
A basic levy of R2960 plus R250 for each key individual, plus R250 for each representative with a maximum of R1 282 744.

Category II, II A and III FSP’s:
Basic levy of R5 965, plus R473 for each key individual, plus R473 for each representative, plus 0.00001605000 of total value of investments managed, to a maximum of R1 282 744.

Where a license is under suspension on 31 August 2012, the authorised financial provider will be liable to pay the applicable levy within 30 days from lifting of a suspension subject to a maximum of R1 282 744.

A basic levy of R675, plus R257 for each Key Individual, plus R257 for each representative, with a maximum of R182 898.

8. Please note that the FSB has been deregistered for VAT purposes and VAT is thus not paid with regard to the levies (VAT exclusive).

9. Section 22 of the FAIS Act determines that the Office of the FAIS Ombud must be funded by the FSB. This is the reason why there are two invoices. The FAIS Ombud levy is ring-fenced for control purposes.
10. The FSB financial accounts are public documents and are presented to the Minister of Finance and to Parliament annually. The audited financial statements are included therein and stakeholders are able to obtain detailed information as to the state of the FSBs accounts, expenditure patterns and accounting practices. These statements are also available on the FSB’s website and forms part of its annual report.

11. In the determination of the FAIS levy formula, it was recognised that every FSP receives regulatory attention. The principles of the levy (and this applies to every entity regulated by the FSB) are based on reasonableness, ability to pay and consistency. In recognition of the fact that a minimum amount of regulatory attention is required for every single FSP, the levy consists of a base amount, which probably works out in the region of R302 per month (FSB and OMBUD). This base amount is required and paid by all authorised FSP’s. Larger FSP’s, depending on the number of key individuals and representatives in their employ are required to pay a higher levy so that the levy escalates according to size. Large commercial brokers may even be required to pay the maximum of R1 282 744 as a levy. Other institutions such as life officers with large sales staff fall into the same category.

12. Levies payable by Section 45 short-term insurance intermediaries separately in previous years, will be invoiced by the Finance department under the FSP account number. This levy is payable for the on-going regulation of such intermediaries in terms of the provisions of the Short-term Insurance Act, 1998.

13. SARS has informed us that the levy amount paid by you to the FSB is a tax deductible expense.

14. The Executive Committee is well aware of the fact that levy payers fund the FSB and our approach is to keep our expenses down to the minimum. This objective will continue to be pursued.

15. The FSB will further endeavour to keep the base levy amount as low as possible and, if necessary, spread the levy burden towards the representative/key individual component thus compensating to some extent, the single person FSP.

16. Non-payment of a levy can jeopardise the license of an FSP. Your attention is also drawn to the Financial Services Laws General Amendment Act, 2008 (which became effective on 1 November 2008) and gives the Registrar the power (in terms of section 9 of the Financial Advisory and Intermediary Services Act, 37 of 2002) to withdraw any license, if satisfied on the basis of available facts and information, that the license is liable for payment of a levy under section 15 (A) of the Financial Services Board Act, 1990 and has failed to pay the said levy and any interest in respect thereof.

17. The Registrar has observed in the past few years that there may be financial services providers who, in order to reduce the amount of levies payable to this Office, remove representatives from the respective registers before the levy calculation date (31 August) and then update the registers with the same representatives after the such a date. Such conduct is viewed in a serious light by this Office, will be monitored closely and can jeopardise the license of an FSP.

18. Should your contact details differ from that appearing on this letter, please reply to this letter by informing us of your correct information. It is important to have your correct contact details on record to avoid invoices being mailed to an incorrect address and to avoid unnecessary interest being charged if levies are not paid timeously.

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