FCA proposes doubling minimum fees for advisers

The Financial Conduct Authority (FCA) has proposed doubling the minimum fee it charges firms including advisers and intermediaries to be regulated each year.

From April 2022 it is proposing to increase its base A.0 fee from the present £1,151 to £2,200 per year for each firm.

In its CP21/33 consultation paper, the regulator said it was proposing the change to match its minimum funding model to that of its overall work.

The FCA’s minimum funding model which estimates a bare-bones regulator carrying out minimal regulatory functions and effectively acting as a registrar with about 700 employees, costs about £50m per year.

It said firms operating within the A fee-blocks, which include the A.19 general insurance distribution block for health and protection intermediaries, accounted for 83% of its total annual funding requirement (AFR).

However, these firms paying the base A.0 fee only cover £21m of the minimum funding requirement and the FCA is proposing to increase this to 83% or about £41.5m. That would see the fee rise from £1,151 to £2,200.

Firms operating in these A fee blocks will also typically pay variable fees once their income reaches above a certain amount. This will continue but the FCA has not proposed increasing these levels of fee payments yet.

“At this stage, we propose to limit the model to the firms in fee-block A.0,” the FCA said.

“These account for 83% (£510.9m) of our AFR costs and cover major regulated activities such as deposit taking by banks and building societies, insurance, fund management, retail investment, claims management, investment, mortgage and general insurance intermediation.

“Once we have established the model, taking into account any modifications suggested through consultation, we will consider how to apply it more widely.”

 

Change of scope funding

The FCA is also proposing that when it changes its scope, potentially by extending its regulation over a new market area, it should spread these costs among already regulated firms along with the newly regulated.

This would see an increase to the FCA’s cost base which would potentially mean higher fees in one form or another for all firms.

At present the FCA recovers the costs of extending its reach through application fees paid by the newly regulated firms with any shortfall then collected from these firms once they are all approved.

Once the project costs have been recovered, the FCA incorporates the annual running costs of supervising the new regime into its ongoing budget.

“Over the past year, we have become concerned about the viability of this model. Blocking the entry of unsuitable firms reduces future supervisory and enforcement costs and increases confidence in the market but may result in an insufficient pool of potential fee-payers,” the FCA said.

It continued: “We believe that, as with application fees, the wider body of fee-payers benefits from the market confidence and lower regulatory costs that arise from effective control of the gateway for scope change and so it is reasonable to split cost recovery between the new entrants and existing fee-payers.

“We propose that, depending on the prevailing circumstances, we will in future consider dividing the recovery of scope change costs between existing fee-payers and new entrants.”

The FCA’s consultation is open until 31 January.

It added: “At this stage, we are consulting about our approach to setting the fees. We are not speculating on the additional revenue our proposals might generate nor considering how we might use it.

“We will set the rates in our spring 2022 consultation on fee-rates. By that time we will have set our budget for 2022/23, so will be able to take into account our funding requirements for the coming year and the feedback we have received through this consultation.”

 

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