The Financial Conduct Authority (FCA) is considering freezing minimum and flat fees for the next financial year as it acknowledged the high inflation environment facing financial firms.
Beginning consulting for its 2023/24 fee levels with CP22/23, the regulator said it wanted to “ease the pressure on fees, particularly for smaller firms”.
The regulator has not yet set its annual funding requirement (AFR) or the cost of ongoing regulated activities (ORA) but said it had committed to keeping ORA flat in real terms and therefore limiting its annual increase to the consumer price index (CPI).
“Although the CPI is currently substantially elevated, we are determined to manage the rise in FCA costs as far as feasible over the coming year to ease the pressure on fees, particularly for smaller firms,” the FCA said.
“We propose to take the December 2022 CPI as a fixed measure and benchmark our estimated costs against it.
“We are giving due consideration to inflationary pressures as we finalise our budget for 2023/24 and do not expect it to reflect the full increase in inflation as measured by the CPI, but we are not in a position to give an indicative figure at this stage.”
The AFR for the current financial year was £630.9m which when combined with a £49m rebate from fines collected reduced the fees payable to £581.5m in 2022/23.
Advisers operating in the health and protection sector are generally included in the A.19 general insurance distribution fee block for the FCA, which contributed around £31.5m to the regulatory budget.
Minimum and flat fees
The FCA noted that around 34,500 firms pay minimum fees only.
During the pandemic, it froze minimum and flat-rate fees to provide material support to some firms and is considering the same approach for 2023/24.
“In November 2021, we consulted on a new structure of enhanced minimum fees for the A fee-blocks and the consumer credit fee-blocks,” the FCA said.
“We finalised the structure in our policy statement in June 2022, spreading the increase over four years to 2025/26.
“Freezing this year’s rates would therefore mean deferring the timetable by a year. We will review the position again next year.”
Application fees and funeral plans
Application fees for new firms to be authorised were due to be increased by inflation to avoid the charges being eroded by inflation in the future, however this appears likely to be postponed too.
“We are mindful of the significant inflationary pressures on businesses in the current climate and so we do not propose to increase application fees in 2023/24. We will review the position next year,” the FCA said.
The regulation of pre-paid funeral plans, which came under the FCA this year, is likely to add £5m to the wider bill for the financial services industry with only 20 to 30 firms expected to be in this category.
“We do not believe they will have the capacity to pay back approximately £5m project costs on top of their annual supervisory costs of about £1m, so we propose to spread the project costs proportionately across all fee-blocks,” the FCA said.
Appointed representative firms
In 2021/22, the FCA introduced flat-rate charges for each appointed representative (AR) that principal firms have registered with it, which contributes towards tackling the harm caused by ARs.
At present the FCA appears likely to leave these fees unchanged as well.
“We are monitoring the funding needs of our continuing work on ARs and the most appropriate manner to recoup our costs,” it said.
“The current charges meet our anticipated funding requirements, so we propose to maintain them for 2023/24. We will review them again when we consult on the rates for 2024/25.”