The Irish Financial Services Regulatory Authority (IFSRA) is seeking to impose a €20 million annual levy on financial institutions, insurance companies and other intermediaries to offset some of the regulation costs.

The IFSRA yesterday issued a consultation document to the financial services industry proposing the introduction of the levy on a phased basis with a view to recovering €20 million in the first year.

This would cover just over half of the authority's estimated €39 million regulatory costs during 2004.

The paper notes that the current costs include some start-up costs and cautioned that the level of its total costs would only emerge as it developed an integrated structure.

The financial services companies have been invited to reply to the consultation document by February 20th.

The move towards forcing the financial services to contribute towards its regulation had been expected and the consultation process will largely centre on how the levy should be applied.

The Minister for Finance, Mr McCreevy, will have to approve the regulations needed to impose the levies.

The IFSRA is proposing that for certain sectors of the industry, it would impose an annual charge that would take account of its relative size and the amount of regulatory work involved.

A more complex financial organisation would more likely face a levy that would relate to its size and would also be linked to the amount of capital it is required to hold and the gross premium income earned.

The IFSRA expects to issue the first round of invoices to the industry in the middle of next year.

After that, the invoices will be issued annually in advance.

The IFSRA has proposed that the major credit institutions, such as banks and building societies, would pay 30 per cent or €5.9 million of the total charge.

Insurance firms, including life and non-life businesses, would pay 23 per cent or €4.6 million next year.

Securities and investment firms would contribute 14 per cent or €2.8 million.

Intermediary firms would face a bill of 1.8 million, equal to about 9 per cent of the total amount. While credit unions would pay €1.4 million, or 7 per cent of the levy.

The IFSRA appears to favour the application of a flat fee annual levy which would be the simplest way to collect the levy. In other cases, some firms will pay a charge that will vary according to their size.

The authority intends to encourage prompt payment of this levy by imposing additional charges where the levies are paid more than 35 to 65 days after the due date.

It would prefer to receive these payments early in the financial year but will consider the industry's views in this regard.

In the consultation paper, the IFSRA states that it is committed to providing "value for money" and would be developing reviews of its different supervisory activities.

Financial Services Ireland, the industry body representing companies at the International Financial Services Centre, said the consultation paper was a "clear, well- thought out and constructive document".

Its director, Ms Aileen O'Donoghue, said that while the funding costs of IFSRA were significant, the rationale for the approach adopted was reasonable.

The IFSRA was formally established last May to act as a single regulator for all financial services in Ireland.

It has told the industry that the purpose for raising funds is to ensure that it has sufficient monies to perform its functions.