Frequently asked questions - strategic review fees calculator

In our 2009/10 Business Plan we acknowledged that our fee structure has evolved since December 2001, when we received our powers under FSMA. We have seen significant changes to both the industry and ourselves, particularly due to EU directive implementation, since the current regime was introduced in 2001/02.

We committed to undertake an internal strategic review and the scope was to question how we allocate our costs and recover them from firms. The review included obtaining informal views from the industry.  How much we raise or what we spend it on was not within the scope of the review.

The outcome of the strategic review is detailed in Chapter 3 of CP09/26.

The key proposals are:

1. Introduce a new minimum fee that all firms will have to pay, of approximately £1000. 
   This will reflect the baseline cost of being regulated e.g. the costs of regulatory reporting, operating the contact centre, authorisation activity and our policing of the perimeter. This will make it clearer to firms what the minimum fee covers. It will also be fairer as the basis for calculating it will be the same for all firms (and firms doing more than one type of business would only pay one minimum fee).    
   
   There would be one exception to this – the smaller credit unions will continue to pay a lower minimum fee (of either £160 or £540 depending on size), as they offer basic savings and loan facilities to their members, many of which would not be able to obtain such services elsewhere.
   
2. Move to straight line recovery for those firms that pay a variable periodic fee on top of the minimum fee.
    
   We are proposing that the variable periodic fee should increase in direct proportion to the size of a firm – so on a ‘straight line’ basis.
   
   Under our current policy we moderate the recovery of costs which results in larger firms paying less for each incremental increase in the measures we use to assess size of permitted business (tariff data).
   
   The one exception will be that the largest deposit takers (including banks and building societies), due to our more intensive supervision of these firms (and the substantially increased cost that comes with this), will be subject to heightened fee rates relative to smaller firms.  This builds on our current approach of weighting the costs of our supervisory enhancement programme to the largest firms that accept deposits.

For more information see our Consultation Paper.  In particular see Chapters 4 and 5.

The proposals in CP09/26 only affect FSA fees. They do not have an impact on Financial Services Compensation Scheme (FSCS) or Financial Ombudsman Service (FOS) levies.

Virtually all FSA-regulated firms, including banks, building societies, insurers, investment managers, securities firms, as well as retail, mortgage and general insurance intermediaries and authorised professional firms. Also, firms who operate through a branch in the UK under a European Economic Area (EEA) passport.

A: In a move to straight line recovery a firm’s variable periodic fee will be in direct proportion to the size of permitted business – impact risk on the FSA objectives if that firm was to fail. The more permitted business a firm undertakes the more fees it will pay.

The new minimum fee proposals will simplify and significantly increase transparency as it is clear what the minimum fee will cover and why.  It will also be fairer as the basis for calculating your fees will be the same for all firms.

The benefit of straight line recovery over the current moderated recovery is that it is consistent to all firms, transparent and easier to understand.

In our 2009/10 Business Plan (published February 2009) we acknowledged that our fee structure has evolved since December 2001, when we received our powers under the Financial Services and Markets Acts 2000 (FSMA).

We have seen significant changes to both the industry and ourselves, particularly due to EU Directive implementation, since the current regime was introduced in 2001/02. As a result we are questioning whether our current fee structure and cost allocation model continue to be appropriate and we committed to take informal views from the industry and consult on any proposals. We did this through an open question in the February 2009 fees Consultation Paper and a workshop with trade associations, and we met with both the Practitioners Panel and the Smaller Businesses Practitioners Panel. We also commissioned PA Consulting to undertake independent research into how other regulators raise fees where they are funded by their industry (this research is published alongside CP09/26)

Although there was no fundamentally different framework identified through the independent research or proposed by industry through the informal views taken, areas of potential improvement were identified with the existing framework. These centred on the lack of transparency, the level of cross-subsidy, the extent risk is taken into account and complexity. The strategic review proposals are aimed at making these improvements.

The outcome of the strategic review is detailed in Chapter 3 of CP09/26.

A: The impact will vary depending on the amount and types of regulated business your firm undertakes. We indicate in CP09/26 , Chapters 4 and 5, the general levels of impact the proposals will have on firms. The impact can range from marginal increases or decreases to substantial increases or decreases in the fees your firm will pay in 2010/11 if the proposals go ahead. The fees calculator will enable you to calculate what the impact will be on your individual firm, as it is tailored to the types of permitted business you undertake (fee-blocks) and the amount or size of that permitted business (tariff data).

It is important that you use the strategic review fees calculator to assess the impact on your individual firm of these proposals and let us have your comments as part of this consultation.

Using the fees calculator will enable you to calculate what your firm’s 2009/10 FSA fees would have been if we had adopted these proposed changes this year. By comparing the review rates-based fees with the fees your firm actually paid this year you will be able to see the impact that these proposals will have if they go ahead.  

It is important that you use the fees calculator to assess the impact on your individual firm of these proposals and let us have your comments as part of this consultation.

The actual fees firms will pay for 2010/11 will depend on the FSA budget and the annual funding requirement (AFR) for next year, and the outcome of this stage 1 consultation.

The fees calculator is designed to show what your firm’s 2009/10 FSA fees would have been if we had adopted the strategic review proposals this year. Therefore you need to input under the same fee-blocks (types of permitted business undertaken) with the same levels of tariff data (our measure of size) that were used to calculate your 2009/10 fees. This information is contained in the invoice you received for 2009/10.

The strategic review fees calculator is designed to show what your firm’s 2009/10 FSA fees would have been if we had adopted proposals this year. By comparing the strategic review rates based fees with the fees your firm actually paid this year, you will be able to see the impact that the proposals in CP09/26 will have if they go ahead. We have referred to this as Stage 1 of the consultation which closes 11 January 2010.

In February 2010 we will undertake Stage 2 of the consultation which will take account of responses from firms and other industry stakeholders received to the Stage 1 consultation. The proposed new minimum fee and the tariff rates under the proposed straight line recovery policy will be based on our Annual Funding Requirement (AFR) for 2010/11 – Stage 2 proposed fees. The AFR for 2010/11 will be based on our budget for delivering our strategic objectives as set out in our Business Plan for that year. Therefore the level of the proposed new minimum fee and periodic fee rates could be materially different to those that the strategic review fees calculator is using for Stage 1 consultation.

In order for you to see how the combined affect of the proposed strategic review changes and the changes in the AFR 2010/11 will affect your firm’s fees in 2010/11 we will provide a further fees calculator to enable you do this.  Therefore to get the full comparison of your 2010/11 fees compared to your fees for 2009/10 you will need to use the February 2010 fees calculator.

A: CP09/26 splits the consultation between the two key proposals –  (1) introduction of the new minimum fee structure and (2) move to straight line recovery for the variable periodic fee (VPF), which most firms pay in addition to the minimum fee. The aim is to seek views on each independently as, subject to the outcome of the consultation, we could proceed with either, both, one or neither of the proposals. The impact data was structured to support each proposal separately, aimed at giving indications of the levels of increases or decreases in fees that firms could experience if the proposals were adopted.

Table 4.1 in Chapter 4 of CP09/26 provided the impact of the proposed new minimum fee structure focusing on firms that only pay minimum fees (44% of firms). Table A below shows the impact of the proposed move to straight line recovery for the firms who pay VPFs (56% of firms). To show this, Table A was calculated based on the existing minimum fee structure.

The strategic review fees calculator is aimed at enabling firms to assess the impact on them and combines the impact of both proposals. Combining the impact of the proposals can result in greater maximum increases or maximum decreases compared to what is stated in Table A in Annex 4 of CP09/26.

The table below compares Table A in CP09/26 with the maximum increases and maximum decreases resulting from the combined proposals as used in the strategic review fees calculator. The table also shows the number of instances where the maximum increases and decreases are greater than in Table A in CP09/26.