Dennise Williams, Staff Reporter
IN the drive to become a self-funding watchdog agency, the Financial Services Commission (FSC) has revised its fee schedule applicable to Security Dealers and Advisers effective September 1, 2003.
The increase in fees is substantial, with the potential yearly pay-out by some companies possibly reaching to the millions of dollars. The funds are to be used to fund the agency charged with preventing another financial industry meltdown. According to the General Manager of the Jamaica Stock Exchange (JSE) Wain Iton, "The FSC has totally revamped their fee structure. They are of the belief that the industry should pay for supervision."
However, Mr. Iton is not supportive of this move that requires the industry pay for its own supervision.
While acknowledging that England follows a similar fee structure, the world's largest stock exchange in the United States does not. Speaking with The Financial Gleaner yesterday, Mr. Iton said: "The Securities Exchange Commission (SEC) in the United States does not force dealers to support the regulatory agency. The federal government puts SEC funding in its budget."
Previously, the FSC fee structure included some of the following fees to be paid by security dealers.
DEALER
Individual $120,000.00
Company $120,000.00
Representative $16,000.00
Company Branch $8,000.00
INVESTMENT ADVISER
Individual $90,000.00
Company $90,000.00
Representative $8,000.00
Company Branch $4,000.00
As of September 1, the new fee structure as outlined by The Securities (Licensing and Registration) (Amendment) Regulations, 2003 is, "The greater of (i) $170,000.00 or (ii) the aggregate of
(A) 5 basis points on the first $2 billion of assets; and
(B) 2 basis points on the next $13 billion of assets; and
(C) 2/100th of a basis point on assets over $15 billion, less the aggregate amount of fees paid by the dealer for its representatives and responsible officer during the twelve months preceding the anniversary."
The Amendment to the Securities Act outlines their definition of assets. "Assets means the aggregate total of a dealer's balance sheet assets as at the 31st December of the year immediately prior to the anniversary of the grant of its licence, taken with the netting off of its liabilities plus the aggregate value, at that date, of securities or other investment instruments held or managed on behalf of clients, whether on a discretionary or non-discretionary basis."
In the case of overseas mutual funds and unit trusts, the Amendment states, "The net value of securities sold by or through the dealer during the year ending on the 31st December of the grant year of its licence."
Capital & Credit Merchant Bank Ltd., with assets of over $27 billion, could face a bill of approximately $3.8 million in 2004. Pan Caribbean Merchant Bank Ltd, holding assets of around $3.1 billion is looking at about $1.2 million in fees and George & Branday Ltd. with a modest $1.6 billion will face about $800,000 in fees. However, Managing Director of George & Branday, Wayne Wray, states that the axe has not fallen yet as the financial services industry and the FSC are still in discussions. What both sides agree is that there is a need for regulation.
"For one, there is still dialogue taking place. The new fees don't come into effect until 2004, as most firms have paid their fees for 2003. The industry does not have a problem over paying fees because there is a need for quality staff to oversee the industry." Specifically, Mr. Wray tells The Financial Gleaner that the industry has issues with the
following points.
How the percentage of assets should be calculated. Industry players are of the opinion that the current calculation under the Amendment is excessive.
How large the FSC should become. Yes, there is a requirement for adequate staff to oversee the industry, but it needs to be discussed more with the affected parties.
Industry players who are not active participants with the general public, such as pension funds who buy securities for their own accounts, should not be assessed in the same manner as a broker who buys for several thousand clients.
But regardless of the outcome of the discussions, the industry does not intend to fully absorb the fees. They will be passed on, even in part, to the consumer. Said Mr. Wray, "There will be a reduction in the returns to customers. Where the broker would take a 0.25 spread, because of the new fee structure, the spread would perhaps be 0.33. There will still be a differential between money
market instruments and regular bank deposits but the differential will narrow. Investors will be asked to pay for a reduction in risk, as the industry will be under more
scrutiny. So in that respect,
regulation is a good thing." Mr. Wray continued, "The consumer should see the effect of these fees in the first quarter 2004."
The FSC is charged with
regulating and supervising all the financial institutions not involved in deposit taking. This includes over 60 securities dealers. Efforts by The Financial Gleaner to get a response from the FSC's Executive Director Brian Wynter were unsuccessful.
