Calls for 'rich' SFC to cut levy, licence fees
The Securities and Futures Commission (SFC) is facing pressure to cut its investment transaction levy and licence fees after lawmakers took the unprecedented step of rejecting its budget proposal.
They slammed the watchdog as being 'too rich' to need to charge fees when it was sitting on billions of dollars in reserves.
Besides voting to reject the budget, the majority of the Legislative Council's financial affairs panel yesterday called on the SFC to submit a new budget to address what they described as 'unacceptably high' reserves.
The reserves currently stand at HK$7.4 billion and are expected to rise to HK$7.6 billion by the end of March 2013.
'Under the law, the government and the SFC have agreed that whenever SFC reserves reach a level equivalent to two years' of its expenses, it should suspend or reduce the transaction levy,' said Chim Pui-chung, lawmaker for the financial services sector. 'The SFC reserve is currently equivalent to seven years of its annual spending, but its budget doesn't mention cutting its levy or other charges.'
The current reserves are 7.3 times the SFC's HK$1.01 billion budget for the current fiscal year which ends in March. They could support the SFC's expenditures for 5.4 years, based on its estimated HK$1.36 billion budget for the new financial year which starts on April 1.
'The securities regulator's budget is unacceptable, as it is against the law and is unfair to investors,' said Chim. 'Why does it continue to ask investors to pay when it is so rich already? The financial secretary should reject this SFC budget as it is against the public interest.
'The SFC should also reduce or waive the licence fee paid by stockbrokers and fund managers, as many of them are suffering from the financial crisis.'
Set up in 1989, the securities watchdog mainly derives its income from licence fees paid by brokers, fund managers and financial advisers, and from a 0.003 per cent transaction levy paid by investors.
Its budget does not need Legco's approval, but strong opposition would make it difficult for Financial Secretary John Tsang Chun-wah to give his approval.
'The financial secretary should reject the SFC's current budget,' said lawmaker James To Kun-sun. 'It is outrageous for the regulator to plan to keep charging investors when it has so much money in reserves.'
However, SFC chief executive Ashley Alder said the levy, which was cut twice before, was low. 'The market is still facing a lot of uncertainties and we cannot be sure about the turnover this year. If we cut the levy further, we may well run into an operating deficit,'' Alder said.
He said the SFC's board of directors would study lawmakers' concerns and rethink reducing the levy.
Chim also criticised the SFC for planning to raise its spending by 34 per cent in the upcoming financial year. 'If the SFC is worried about the market, why does it plan to spend more?'' Chim asked.
But Alder said the SFC needed to hire 43 staff to bring the total to 691, and to give all employees a 5.8 per cent pay rise.
Chim also urged the SFC - which plans to move to the Cheung Kong Center from Charter House later this year - to move to cheaper offices. 'The SFC could move outside Central to reduce its rental payment,' Chim said.
The SFC, said Alder, needed to stay in Central. 'The regulator needs to be at the heart of the city centre as it enhances regulatory efficiency and is in line with overseas practice,' he said.
Kenny Lee Yiu-sun, chief executive of First China Securities, supported a cut in levy and licence fees to encourage more investment. 'The government only needs to keep its reserves for 18 months. Why does the SFC need to have a reserve for seven years?'' Lee asked.