8 July KiwiSaver Periodic Reporting Regulations Investment Law Team Ministry of Economic Development PO Box 1473 WELLINGTON.

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8 July 2011 KiwiSaver Periodic Reporting Regulations Investment Law Team Ministry of Economic Development PO Box 1473 WELLINGTON To the Chair, WORKPLACE SAVINGS NZ Submission on the Proposed fee and

response to the Proposed fee and levy changes for the Financial Markets Authority, External Reporting Board, New Zealand Companies Office, and Insolvency and Trustee Services Discussion Paper (the

1 8 July 2011 KiwiSaver Periodic Reporting Regulations Investment Law Team Ministry of Economic Development PO Box 1473 WELLINGTON To the Chair, WORKPLACE SAVINGS NZ Submission on the Proposed fee and levy changes for the Financial Markets Authority, External Reporting Board, New Zealand Companies Office, and Insolvency and Trustee Services Discussion Paper We wish to submit the attached in response to the Proposed fee and levy changes for the Financial Markets Authority, External Reporting Board, New Zealand Companies Office, and Insolvency and Trustee Services Discussion Paper (the Paper). Workplace Savings NZ is a national, not for profit, apolitical membership organisation. Our current membership comprises around 100 major workplace superannuation and KiwiSaver schemes and another 50 organisations and individuals representing the various product and service providers for workplace savings arrangements. From the perspective of funds under management, the membership of Workplace Savings NZ covers around 90% of retirement savings held through workplace retirement saving arrangements (i.e. Corporate and Master Trust superannuation schemes & KiwiSaver schemes). Workplace Savings NZ s objective is to be the Voice of Workplace Savings; advancing the sustainable, effective, and efficient delivery of workplace savings outcomes for all involved including the core workplace superannuation scheme members who remain at the heart of the organisation. We do this through: o o o Advocacy proposing and commenting on legislative and public policy initiatives beneficial to workplace savings and participation in the workplace savings industry, making submissions, engaging with policy makers and officials and issuing media commentary to advance those causes. Education promoting trustee, employer and member financial and regulatory education through dedicated training programmes, newsletters and special interest seminars. Networking providing trustees, employers and service providers involved in workplace superannuation with a regular forum for sharing ideas and information on industry matters. PO Box , Wellington 6149 P F info@workplacesavings.org.nz

2 o Promotion publicising the benefits of workplace savings, and helping to improve public confidence and participation in workplace savings. Contact: Bruce Kerr Executive Director, Workplace Savings N.Z. PO Box , Wellington, NZ Ph. (04) Mob. (027) Web Site I would be pleased to discuss our comments or answer any questions you may have in relation to the submission. Yours sincerely Bruce Kerr Executive Director Page 2

3 Workplace Savings NZ Submission to the Investment Law Team Ministry of Economic Development on the Proposed fee and levy changes for the Financial Markets Authority, External Reporting Board, New Zealand Companies Office, and Insolvency and Trustee Services Discussion Paper ( the Paper ) July 2011 Page 3

4 The Workplace Savings NZ Submission Introduction 1. Workplace Savings NZ ( WSNZ ) welcomes the opportunity to make a submission on the Proposed fee and levy changes for the Financial Markets Authority, External Reporting Board, New Zealand Companies Office, and Insolvency and Trustee Services Discussion Paper ( the Paper ). 2. In our submission on the Financial Markets (Regulators and KiwiSaver) Bill dated 10 November 2010, we made the following points: 2.1 We note that clause 63 of the Bill allows for an additional levy on financial market participants to fund the cost of establishing the FMA or the Rulings Panel and disestablishing the Securities Commission, as well as the costs of the FMA performing its functions, powers and duties under the Act; 2.2 Workplace Savings NZ does not support this suggested approach; 2.3 Clause 8 of the Bill states that the FMA s main objective is to promote fair, efficient and transparent financial markets. These activities are for the public good. As such, in our view, the functions of the FMA should be publicly funded. In particular, it is inappropriate to pass regulatory restructuring costs on to remaining market participants. This is a cost that should be borne solely by the Crown as part of its core functions of maintaining regulatory frameworks. Any costs imposed on the industry will inevitably need to be passed on to consumers and scheme members in some fashion, which will do little to enhance public confidence in the system. 3. WSNZ again raised these concerns (points 2.1 to 2.3 above) when presenting to the Select Committee hearing submissions on the Financial Markets (Regulators and KiwiSaver) Bill. 4. It is now clearly evident that Government wants to move towards public and private funding of the regulatory function, and that the discussion has now turned to the conditions that will determine an implementation framework. Financial Advisers Act 2008 (FAA) Levy 5. Despite our protestations in 2010, WSNZ acknowledges the decision taken by Cabinet to move to a third party funding model for all of the FAA regulatory work undertaken by the Financial Markets Authority ( FMA ). 6. Given that Cabinet decision, WSNZ believes it is appropriate that the funding costs that can be clearly identified as costs of the FMA in performing or exercising the FMA s functions, powers, and duties should be met by those that the Financial Markets Authority Act 2011 has been enacted to regulate. The funding costs should not extend beyond that group. 7. We welcome the proposed implementation framework and the adoption of a graduated pricing model which recognises the various registered participants captured under the new financial adviser regime. 8. However, one concern we have is that insufficient recognition is proposed for QFEs in relation to the supervisory role they fulfil. It does not seem appropriate that no concession is made for the FAA levy imposed on QFE advisers compared with non QFE Page 1

5 advisers, given the greater direct burden non QFE advisers are likely to pose on the FMA. QFEs are already up for a significant, separate levy on top of their existing fees and added regulatory burden. In our view, that should be recognised through some relief on the level of levy imposed per QFE adviser. This would reduce the extent of any disincentive to grow the pool of advisers able to operate under a QFE umbrella. FSP Levy 9. As addressed in point 6 above, we also believe that the FMA Levy should be paid only by those whom the Financial Markets Authority Act 2011 has been enacted to regulate, namely those entities required to register under the Financial Service Providers (Registration and Disputes Resolution) Act That said, we question the recommendation to implement a one size fits all approach to the application of the FMA Levy. We believe that such an approach does not take into account equity issues such as: 10.1 The difference between a registered FSP operated for shareholder profit versus another registered FSP who is a not for profit issuers of securities (e.g. retail KiwiSaver Scheme providers versus employer sponsored stand alone super schemes); and 10.2 The business scale of the registered FSP (e.g. a for profit retail KiwiSaver provider offering multiple schemes to the investing public and whose scheme has 400,000 investors with $1.95B under management, versus a closed employer sponsored not for profit stand alone scheme with 200 members and $20M under management). 11. WSNZ acknowledges that the application of a graduated levy is made more complex by the fact that a very broad range of financial market participants and other entities or specified persons are required to register as FSPs. However, we submit that one equitable approach would be to introduce an FMA levy calculation methodology that is based on the entity s allotted securities as disclosed in the latest financial statements (prepared under the Financial Reporting Act 1993) filed with the regulator. 12. To prevent double charging of individuals, authorised financial advisers should be exempted from the FMA Levy. Other General Comments 13. WSNZ supports the recommendations contained in the Paper in respect to closing the funding shortfall for the External Reporting Board, New Zealand Companies Office, and the Insolvency and Trustee Services. 14. We also support the proposed registration of auditing firms and the licensing of those responsible for the auditing function. We see this as yet another positive and necessary step along the road of providing reassurance to non expert investors. 15. That said, we are mindful of the comments in the Paper that it is anticipated that this levy will be passed on to the issuers as part of the fee charged by auditors for their services and, as a consequence, will result in only a minimal increase in costs for issuers. 16. WSNZ would like to remind the Investment Law Team that many stand alone workplace superannuation schemes operate on a not for profit basis with support, either tangible or goodwill support, from a sponsoring employer. In these circumstances we struggle with unqualified support of regulation that may yet again lift the compliance costs and negatively impact scheme members, the scheme s sponsoring employer(s), or the overall sustainability of such schemes. We are also concerned that the proposed auditor Page 2

6 levy has the potential to distort market practice, as insurers are incentivised to move to auditors better placed to absorb the additional costs. We feel the proposed auditor levy is more appropriately spread across a broader base of market participants, or perhaps absorbed as part of the FMA s overall operational costs and picked up through the FMA levy. Submission Ends Page 3

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