2011-06-20
Vasiliauskas: We have reached an in-principle agreement on maximum premiums charged on supervision of market participants
Taking into account suggestions received from market participants, the Bank of Lithuania and Finance Ministry made corrections to maximum tariffs for premiums charged on supervision of banks, insurance companies, securities market and other financial institutions. The suggested tariffs along with the procedures according to which the supervised institutions are to pay for their supervision are yet to be approved by the Seimas and Government.
Governor of the Bank of Lithuania Vitas Vasiliauskas said majority of market participants agreed at the beginning of the discussion that the supervision financing by using the market participants’ funds was a wide-spread global practice, however the exact amount to be contributed by finance institutions was yet to be agreed.
“We are happy constructive discussion in recent weeks ended fruitfully. We took into account most of the suggestions by market participants which seem to have understood our arguments, and now are in the finishing straight. Everything has been agreed basically, there are just a couple of technicalities left,” Vasiliauskas said.
The final version presented to market participants provides for a maximum premium for supervision of banks and credit unions to make up 0.017% of their annual average assets a year. Meanwhile, a premium set for insurance companies is not to exceed 0.26% of the insurance premium amount subscribed in Lithuania. Also, supervision premiums cannot exceed 1% of the annual income of financial brokerage firms and 0.005% of the assets managed by management companies (for the suggested tariffs of maximum premiums to be paid by companies in all financial sectors see the below attached table).
The supervision costs, as well as market share, risks, importance for the stability of the country’s financial system and premium capability of each supervised institution were taken into account when setting the size of a maximum premium.
According to the suggested model, banks are to take the largest share of the burden. The amount to be paid by them if maximum premium tariffs were used, would account for 72% of total collections from market participants. The Lithuanian banking sector however controls the biggest share (as high as 94%) of the total assets of the country’s financial system.
The new supervision financing model and tariffs have been proposed along with some legal amendments providing for a more extensive reform of the supervision of financial institutions, which aims at merging the Securities Commission and Insurance Supervision Commission with the Bank of Lithuania. Provided that the Seimas votes for these amendments in autumn, the Bank of Lithuania is expected to take over the supervision of not only insurance and securities market participants, but some functions of the Consumer Rights Protection institution as well, i.e. it will oversee financial institutions to properly provide services to customers and examine complaints by the latter.
By the way, calculations showed the amount of funds (around LTL 17.2 million) to be collected from market participants even after setting maximum premium tariffs would not be enough to cover the supervision costs in the first year in any case. The Bank of Lithuania therefore will have to use at least LTL 2.6 million of its budget for this purpose.
“We have to work efficiently. After concentrating the supervision of financial institution in the hands of a single authority, we will have real possibilities to improve the quality of the financial institutions supervision and boost cost savings. So, after having streamlined the operations of the government supervisory authorities, we would look for possibilities to lower the suggested maximum premium tariffs for market participants,” Vasiliauskas said.
The Bank of Lithuania is to coordinate premium tariffs with each financial sector under its supervision separately. According to the governor of the central bank, in the longer run, market participants that take bigger risk and require more intensive supervision will pay higher premiums compared to those who take lower risk.
The model of banking supervision where market participants pay for them being supervised is used in Sweden, Finland, Germany, United Kingdom, Latvia, Estonia and other EU countries. In Lithuania at the present time such model for financing supervision is used only with regard to insurance companies.