Tuesday, 2 July 2019

Ceisteanna (180, 181)

Jackie Cahill

Ceist:

180. Deputy Jackie Cahill asked the Minister for Finance the reason the criteria for the industry fund levy for the Central Bank was devised; and if he will make a statement on the matter. [27504/19]

Amharc ar fhreagra

Jackie Cahill

Ceist:

181. Deputy Jackie Cahill asked the Minister for Finance the proposed breakdown for each contributor of the industry fund levy; and if he will make a statement on the matter. [27505/19]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Finance)

I propose to take Questions Nos. 180 and 181 together.

The Central Bank's total funding requirement for financial regulation activity is determined on an annual basis by the resources required to discharge its legal responsibilities under domestic and EU law. Section 32D and 32E of the Central Bank Act 1942, as amended, provide that the Central Bank Commission may make regulations relating to the imposition of levies and fees on the financial services sector in respect of the recoupment of the costs of financial regulation.

As it stands, the financial services industry currently funds 80% of the costs incurred by the Central Bank for financial regulation, with certain exceptions. [Banks which had participated in the Eligible Liabilities Guarantee (ELG) Scheme, namely AIB, Bank of Ireland and Permanent TSB, which are required to fund 100% of the Central Bank's regulatory costs. The levies for Credit Unions are currently capped at 0.01% of total assets as at 30 September in the previous year. As a result, the Credit Union sector currently funds approximately 9% of the cost of their regulation.] This means that the subvention from the Central Bank amounts to approximately 20% of the total cost. What this translates to in monetary terms will be determined by the resources required by the Bank to discharge its legal responsibilities during a given year.

As until now, levies were based on estimates, at the end of each year, budgeted income and expenses are compared with actual income and expenses by the Central Bank, on a category by category basis, in order to arrive at the amount over (surplus) or under (deficit) recovered from Industry. Deficits are added to the amount to be raised from Industry in the following year while surpluses are deducted.

In 2018, the cost of financial regulation activities was funded by levies of approximately €128 million and subvention of €66 million. However, there was a deficit carried forward from 2017, which meant that the actual amount of Levy income raised from industry for 2018 was approximately €137 million.

Table 1: 2018 Levy Income by sector (extracted from Note 40, 2018 Financial Statements of the Central Bank)

Sector

2018 Levy Amount

2018 Levy Income including deficit from 2017 Levy Amount

% of total 2018 Levy Income

€000

€000

Credit Institutions

54,751

59,753

43.7%

Insurance Undertakings

35,647

35,002

25.6%

Intermediaries & Debt Management Firms

6,098

5,925

4.3%

Securities & Investment Firms

19,894

23,594

17.3%

Investment Funds

5,508

5,418

4.0%

Credit Unions

1,665

1,665

1.2%

Moneylenders

887

741

0.5%

Approved Professional Bodies

34

18

0.0%

Bureaux de Change

11

4

0.0%

Home Reversion, Retail Credit & Credit Servicing Firms

1,371

2,601

1.9%

Payment Services & E-Money Institutions

1,270

1,875

1.4%

Total Funding

127,136

136,596

100.0%

More information on the 2018 levies and levy income, and a more detailed version of Table 1, can be found in the Central Bank's 2018 Annual Report, available at the following link: https://www.centralbank.ie/docs/default-source/publications/corporate-reports/annual-reports/2018-central-bank-annual-report.pdf?sfvrsn=11

If industry was fully charged, there would be no subvention, however, there are certain costs (e.g. markets supervision) which it may be appropriate to continue to subvent on an ongoing basis where the costs cannot be attributed to specific firms but do relate to the orderly function of markets and the financial stability agenda.

In 2015, the Department of Finance and Central Bank of Ireland issued a joint public consultation on ‘Funding the cost of Financial Regulation’ (CP95).

In response to that consultation, my predecessor as Minister for Finance, Michael Noonan, agreed to a phased movement towards 100 per cent Industry Funding in order to eliminate subvention, by the taxpayer, of regulatory costs. Since then, recovery rates have increased in stages across most industry sectors, determined on a yearly basis. Now, in order to give greater clarity to industry, I have approved the trajectory to bring the recovery rate of levies across sectors to 100 per cent over the coming years. This change in policy will apply the user pays principle to the regulation of financial services.

The following table shows the planned trajectory for levy rates across all sectors. Credit Union recovery rates from 2022 onwards will be subject to review and a public consultation to guide strategy once 50% recovery rates have been achieved. The Central Bank published this trajectory on 14 June 2019 and it is available on the Central Bank website at the following link: https://www.centralbank.ie/news/article/press-release-funding-the-cost-of-financial-regulation-14-june-2019

Table 2: Trajectory of recovery rates to fund the cost of Financial Regulation

Levy Year

2017

2018

2019

2020

2021

2022

2023

2024

Levied in

2017

2018

2020

2021

2022

2023

2024

2025

ELG Banks

100%

100%

100%

100%

100%

100%

100%

100%

Banks

65%

80%

90%

100%

100%

100%

100%

100%

Insurance Undertakings

65%

80%

90%

100%

100%

100%

100%

100%

Investment Firms & Fund Service Providers

65%

80%

90%

100%

100%

100%

100%

100%

Funds

65%

65%

80%

90%

100%

100%

100%

100%

Retail Intermediaries & Debt Management Co’s

50%

65%

70%

75%

80%

90%

100%

100%

Moneylenders

65%

65%

70%

75%

80%

90%

100%

100%

Approved Professional Bodies

65%

65%

70%

75%

80%

90%

100%

100%

Bureau de Change/Money Transmitters

65%

65%

70%

75%

80%

90%

100%

100%

Retail Credit / Home Reversion / Credit Servicing Firms

65%

65%

70%

75%

80%

90%

100%

100%

Payment & EMoney Institutions

65%

65%

70%

75%

80%

90%

100%

100%

Invoices for 2019 levies will issue on an arrears basis in Quarter 3 2020 as the Central Bank implements its strategy to move from levies based on budgeted to lives based on actual costs. This is to address an aspect of volatility in response to industry feedback by eliminating large balancing surpluses and deficits (as identified above) in favour of levies based on the Central Bank’s audited financial statements. While businesses should accrue for 2019 costs in their financial statements, many will welcome the cashflow effect arising from this change.

Further information can be found in the Funding Strategy and Guide to the 2018 Industry Funding Regulation, where the Central Bank set out its 3-year funding strategy. The Strategy document is available on the Central Bank website at the following link: https://www.centralbank.ie/docs/default-source/regulation/how-we-regulate/fees-levies/industry-funding-levy/guidance/funding-strategy-and-guide-to-the-2018-industry-funding-regulations.pdf?sfvrsn=4