Financial institution licensing fees
What are licensing fees?
8. Financial institution licences needed to offer certain banking and insurance products and services to consumers will be granted by the FMA. Obtaining a licence will be a one-off process and the licences will not have an expiry date. Licences will have standard conditions to ensure that licence holders continue to meet licensing requirements. The FMA has consulted separately on the proposed standard conditions for financial institution licences. More details on the consultation can be found here:
FMA opens consultation on standard conditions for financial institution licences(external link) – Financial Markets Authority
9. The licensing application process will enable the FMA to assess whether the applicant is capable of effectively performing the service of acting as a financial institution. It will also provide valuable information to the FMA about individual institutions and assist the FMA to assess conduct risks and maturity at a sector level. The FMA’s monitoring and supervisory approach will be directly informed by knowledge gained through the licensing process.
10. Licensing fees enable the FMA to recover the cost of staff time to consider a licence application from the applicant. Without recovering these costs from licence applicants, the FMA would be required to subsidise the cost of licensing from other revenue streams. We consider it is appropriate that these fees are charged to the financial institutions seeking a licence (as is common with licence applications) as they receive the private benefit of holding a licence by being able to operate in the regulatory environment established under the CoFI Act.
What costs will the FMA incur?
11. MBIE and the FMA currently estimate around 100 financial institutions will need to obtain a financial institution licence under the new CoFI regime.
12. The FMA will incur costs related to the amount of staff time required to consider a licence application. The time required to consider an application will vary depending on the complexity of the application. Steps have been taken to put triage processes in place, to assess complexity and ensure efficient use of resources, minimising costs of the licensing process. Applications will be made through an online portal and a risk assessment will be undertaken by the system. The system will then flag any issues that need further manual consideration by staff (e.g. the need to request further documentary evidence).
13. We expect that less complex applications would likely require little manual intervention by FMA staff. The licensing system is being designed with binary questions for applicants to indicate whether they consider they meet the requirements. With less complex applications, limited documentary evidence is likely to be requested. An application will be less complex if the applicant provides all required information, the information required to be assessed by FMA is readily available, and there are limited questions or issues arising that require additional information to be sought from the applicant.
14. Circumstances that may increase the complexity of an application may include:
a. The applicant does not have an existing relationship with FMA as a regulated or licensed entity.
b. The applicant submits an incomplete application that is missing required information or documents.
c. The required information is not in the standard form (e.g., because information is from an overseas entity and has been prepared for an overseas jurisdiction).
d. Multiple questions or issues arise that require the FMA to seek additional information from the applicant (e.g., making further enquiries about whether a director satisfies the “fit and proper person” requirements, or confirm one or more key aspects of an applicant’s fair conduct programme).
e. Additional time is needed for internal FMA staff to peer review an application due to complex or multiple issues or if there is additional documentation that needs to be reviewed such as previous compliance information.
f. More complex third-party consultation is required (e.g., a need to consult with the Reserve Bank or the Commerce Commission on regulatory matters relating to the applicant).
g. The applicant has not engaged with the FMA prior to or during the licensing process and has not followed the application guidance provided.
Related costs of the new CoFI regime to the FMA that will not be recovered through the licensing fee
15. In addition to the staff time required to process an application, one of the main costs incurred by the FMA will be the development of the Information and Communications Technology system that will be used to process applications. The capital expenditure costs to develop this system for licensing have already been funded by the Crown and will not be recovered through the licensing fee.
16. The FMA’s baseline funding has also increased to cover costs relating to monitoring and enforcing the new regime. These new functions are funded through a mix of both Crown funding and FMA levies payable by financial institutions that will be licensed under the new CoFI conduct regime.
17. We have identified the following objectives for setting licensing fees for financial institution licences:
a. ensuring that fees are set at a level that fully recovers, but does not over-recover, the costs to the FMA of assessing applications
b. fees are fair, minimising the extent to which the fees create a cross-subsidy between different types of application (particularly between complex and less complex applications)
c. limiting uncertainty to prospective applicants as to the likely total amount of fees they will be required to pay
d. creating incentives for the FMA to deliver services to fee payers in an efficient and effective manner
e. ensuring the charging of fees is able to be undertaken in an administratively efficient manner.
18. In developing these objectives we have taken into account the Office of the Auditor-General’s
Good Practice Guide: Charging fees for public sector good and services(external link) – Office of the Auditor-General
and the Treasury’s
1. Do you agree with these objectives for setting the financial institution licensing fees? Are there other objectives which should be considered in setting these fees?
Proposed fees for financial institution licensing
We propose a flat licensing application fee for standard applications and that an additional hourly rate may apply for more complex applications
19. As discussed above, the cost involved with processing an application will vary based on the complexity and time involved. The FMA is required to consider a wide range of factors when considering a licence application, including whether the applicant has the systems and processes in place to ensure it is capable of effectively performing the service (and likewise for any other financial institutions authorised under its licence).
20. In line with our objectives set out above, we are proposing a licence application fee at a flat rate of $1,024.93 for all applicants and that additional hourly fees may apply if extra time is required to process the application. This will allow the FMA to recover additional costs incurred in considering more complex applications while keeping a consistent base rate for processing standard and less complex applications.
21. The fee recommendation (set out below) has been calculated based on the estimate that a standard licence application will take approximately 5.75 hours to assess, on average. This time estimate anticipates escalation of some issues by the licensing system that require manual follow up by staff. Manual follow up could include a request for further documentary evidence from the applicant, potentially a small amount of document review (e.g., parts of or a summary of the fair conduct programme) and some additional liaison with the applicant. The FMA anticipates that the majority of applications will come within the standard assessment time of 5.75 hours.
22. Where an application is more complex, and the FMA exceeds an assessment time of 6.75 hours, the FMA may invoice the applicant for additional hours at the prescribed hourly rate of $178.25. As with other FMA licensing fees, a small margin of 1 hour has been allowed before the hourly rate may be charged. The FMA will notify an applicant if it is likely to be charged the hourly rate and the reasons for being charged the hourly rate.
23. We note that the proposed fee will represent an additional cost to financial institutions. It is however unlikely to have a significant impact on most financial institutions, given the relatively low amount and that it will only be charged on one occasion (subject to any fees for subsequent applications to vary licences, as set out below). We note the proposed fee is lower than the fees charged for most other licensed services applications under the Financial Markets Conduct Act 2013 (FMC Act) (for example the fees for acting as a manager of a registered scheme or a provider of a discretionary investment management service).
Separate fees will be payable for authorised bodies and for subsequent applications to vary licences
24. We also propose that a separate fee be payable for each additional financial institution covered in the licence as an ‘authorised body’. It is likely that the time required to consider, assess and process each additional financial institution covered as an authorised body will depend on the degree of interdependence of the relevant bodies corporate of the financial institution licensee (e.g., factors such as whether they have the same directors for the purposes of “fit and proper person” requirements, and operate under the same fair conduct programme).
25. On average, the FMA estimates that each authorised body assessment will take approximately 60 per cent of the time taken for a standard financial institution licence application (or approximately 3.45 hours). This is because some of the information relevant to assessing the authorised body’s suitability will already have been considered by the FMA in relation to the financial institution licensee, but additional information will need to be considered in relation to the authorised body itself. The fee for an authorised body to be considered as part of an application has therefore been set at 60 per cent of the standard fee ($614.95).
26. Subsequent applications to vary licence conditions will be charged at the existing variation fee set out in the Fees Regulations of $115.00 plus $178.25 for every hour, or part-hour pro rata, of work carried out.
We do not propose that a discount apply to multiple applications
27. The Fees Regulation make provision for a reduced licensing fee to apply where a person applies for a licence under the FMC Act at the same time, or within six months of, another different licence application. MBIE do not propose that this existing discount (that applies to some other market services licences) would apply to financial institution licences.
28. The purpose of the discount is to recognise lower costs for the FMA because information provided in the application forms part of another licence application. The FMA’s licensing system is now designed to assess applications in the first instance through an automated licensing system, leading to relatively low estimated processing times (compared to detailed staff assessment in the case of other existing FMC Act licenses to which this discount regulation applies). It is unlikely there will be lower costs for the FMA resulting from multiple applications where one or all applications are for a financial institution licence under the CoFI regime.
29. As with the fees for financial advice providers set in 2019, the proposed basic licensing fee has been calculated taking the benefits of the automated licensing system into account.
Summary of proposed fees
30. The proposals in this paper are based on the FMA’s estimate as to the relevant costs, including estimates of the number of hours involved in processing a standard licence application. The FMA will continue to refine these estimates as the licensing process is finalised to ensure the charges are set at as close as possible to actual cost recovery level. It is possible that final proposed fees will vary slightly from those set out below.
31. The following table summarises the proposed licensing fees:
|Financial institution licensing fee (all costs inclusive of GST)|
|Basic licensing fee for all applicants (based on estimated time to assess standard application of 5.75 hours)||$1,024.93|
|+||Hourly rate charges that may apply for applications where the time to assess exceeds 6.75 hours||$178.25/hour, or part-hour pro rata, of work carried out|
|+||Fee for each authorised body included in the licence (based on estimated time to assess standard application of 3.45 hours)||$614.95|
|+||Other variations to licence||$115 plus $178.25/hour, or part-hour pro rata, of work carried out|
The proposed fees meet MBIE’s objectives
32. We consider that this proposal meets MBIE’s objectives for setting licencing fees because:
a. it should allow the FMA to fully recover the anticipated staff cost of assessing financial institution licence applications
b. the additional hourly rate above the basic licensing fee limits cross-subsidy between different applicants i.e., complex and less complex licensing applications
c. using a flat fee combined with an hourly rate above the specified time threshold will provide certainty to most applicants, while allowing the FMA to recover additional costs incurred in assessing more complex applications
d. it will encourage the FMA to deliver licensing services to fee payers in an efficient and effective manner, by setting the base fee at a level that appropriately recovers costs in most cases and by requiring the FMA to notify applicants and explain the reason for charging an additional hourly rate in more complex cases
e. it is simple to administer and aligns with the approach taken to other licensing fees under the FMC Act.
2. Do you have any comments on our assessment of the proposed financial institution licensing fee as set out above?
33. We have considered alternative options for setting the financial institution licensing fees and these are summarised below.
Flat application fee for all financial institutions with no additional hourly rate
34. Under this option, all financial institutions would be required to pay the same flat application fee, regardless of the complexity and time taken to assess their application. There would be no additional hourly rate charged, irrespective of the amount of time it takes for FMA to assess the application.
35. MBIE does not support this option as it does not reflect the expected variation in complexity of applications. A model based solely on a flat fee would result in higher fees being charged to all applicants to ensure that the FMA was fully recovering the costs of processing complex applications. While this would provide certainty to the industry, we were concerned that this option would result in cross-subsidisation between different applicants. Applicants with less complex applications would subsidise applicants with very complex or incomplete applications. It would not be consistent with the Office of the Auditor-General’s Good Practice Guide or the Treasury’s Guidelines for Setting Charges in the Public Sector.
36. This option does not align with the objectives set out above and thus MBIE does not recommend this option.
Setting different licence classes
37. Under this option, different licence classes with different fees could be set for each type of financial institution (i.e., three separate licence classes for banks, insurers, and NBDTs), or based on the products or services they offer, or the size of the business.
38. There is no clear basis for distinguishing between types of financial institutions to create classes for the purposes of the licensing fee. All financial institutions need to go through the same assessment process. The ability of applicants to satisfy the licensing requirements, and the complexity of applications will vary for a range of reasons as outlined in paragraph 14 above. The size or type of financial institution is not likely to be a key determinant of costs incurred by the FMA. Based on this analysis, it would be unfair to set different fees for different types of financial institutions and would generate cross-subsidies.
39. This option is not MBIE’s preferred option. It does not meet the objective of charging licensing fees in a fair manner. Under this approach, more complex applications by one kind of institution may be charged less than less complex applications by another kind of institution. This option would limit uncertainty for prospective applicants, similarly to MBIE’s preferred option, but in MBIE’s view would not outweigh the disadvantages involved.
40. As noted above at paragraph 10, we consider it is appropriate that these fees are charged to the financial institutions seeking a licence. The Office of the Auditor-General’s Good Practice Guide notes that public organisations will generally charge fees where the service provides an individual or group of individuals with a direct benefit or where the service is necessary to mitigate risks presented by the activities of an individual or group of individuals. In these circumstances, financial institutions receive the private benefit of holding a licence by being able to operate in the regulatory environment established under the CoFI Act (which responds to conduct risks presented by the activities of financial institutions). These private benefits are not shared with a wider group. It is therefore more equitable to charge fees for licence applications rather than use Crown funding, as taxpayers would otherwise be funding a private benefit.
41. We note that the CoFI regime as a whole provides public benefits of increased consumer trust in financial institutions and reduced consumer harm by introducing conduct licensing requirements for banks, insurers and NBDTs. These public benefits were taken into account in the FMA funding and levy review (discussed above at paragraph 6). Unlike a fee, a levy can factor in benefits shared between groups or benefits that cannot be specifically assigned to individual groups.
3. Do you have any comments on our analysis of these alternative options? Are there other options, or variations on the above options, that should be considered?
 Not all prudentially registered banks, licensed insurers and licensed NBDTs will need to obtain a financial institution licence. For example, if a bank only provides services to wholesale clients (that are not ‘consumers’), the bank will not need to obtain a financial institution licence.
 A licence may, in its conditions, authorise 1 or more related bodies corporate of the licensee to provide a market service covered by the licence - section 400 Financial Markets Conduct Act 2013.
 The FMA’s hourly rate is set in the Financial Markets Conduct (Fees) Regulations 2014 at $178.25 per hour inclusive of GST. Fees for applications to vary licence conditions are also set in these regulations.