Pearse Doherty (Donegal, Sinn Fein)
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264. To ask the Minister for Finance the estimated full-year saving in 2021 that would accrue from moving the entire cost of regulation of the financial sector onto the industry with the exception of credit unions; and if he will make a statement on the matter. [18775/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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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.

Information on the 2021 levy cycle is not yet available, however the Central Bank Annual Report 2019 shows that the cost of financial regulation activities of €204.5m is funded by income from industry €160.0m and subvention from the Central Bank of €44.4m. Within this, the cost of regulating Credit Unions is estimated at approximately €14m. Based on a 20% recovery rate, a subvention amount of €11.2m arises – the highest subvention and lowest funding rate applicable to any industry category.  The remaining subvention of €33.2m reflects categories that are moving towards but are not yet at 100% funding and some costs relate to legacy Inquiries and Markets Supervision which are not recharged to industry.

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.

As you will recall, 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. In April 2019, in order to give greater clarity to industry, I 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 table below 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:

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From this year, in response to industry feedback, invoices for levies will issue on an arrears basis as the Central Bank implements its strategy to move from levies based on budgeted figures to levies based on actual costs.  Invoices for 2019 levies will issue in Q3 2020 and businesses were advised to accrue for 2019 costs in their financial statement. This addresses an aspect of volatility by eliminating large balancing surpluses and deficits in favour of levies based on the Central Bank’s audited financial statements.

Finally, the Funding Strategy and Guide to the 2018 Industry Funding Regulations guide (available at the link below) may also be helpful. It is planned to issue an updated guide in advance of the issue of 2019 levies invoices.