FSA consults on proposed fees for new regime

FSA Chief Operating Officer, Paul Boyle, said:

"From 1 December we will have both wider responsibilities such as direct regulation of firms of lawyers and accountants and deeper statutory duties like educating consumers, tackling market abuse and reducing financial crime. The cost of all this additional work is within the range we expected and is reflected in the revised budget we publish today.

"The proposed fees on which we are now consulting reflect the outcome of extensive discussion with the industry over the last 18 months. The industry has expressed support for the underlying principle that a firms fee will be related to the type of business it undertakes and the size of its business. We believe the proposed fees represent a fair basis for raising the funds we need to meet our statutory responsibilities.

Main features

The key points of todays publication are:

• The FSAs revised budget for mainstream regulatory activities for the whole of 2001/2 is 166.9 million, including the additional work from N2 until 31 March 2002 for its wider and deeper statutory responsibilities. The figure published at the beginning of this year (which excluded the cost of additional post-N2 work) was 164 million. The extra cost is within the range the FSA predicted when publishing the original budget.

• The fee-raising framework previously consulted on spreads the costs of the FSAs future activities fairly and proportionately across the various regulated sectors (fee-blocks) and the fee-payers within them. This framework, coupled with the impact of the Financial Services and Markets Act on the FSAs statutory responsibilities and of implementing its new organisational structure, means some sectors, particularly insurers, will see an increase in fees. Other sectors, such as large banks, will see a considerable reduction in their fees.

• To cushion the impact of the most significant changes arising from the new fee-raising arrangements, and to give firms time to adjust, the FSA is proposing to phase in the changes over a three-year transitional period.

• It is estimated that for those firms facing a fees increase, 71% will pay less than 1,000 a year in additional fees compared to their pre-N2 position.

• Further, the post-N2 fee tariff structures have been designed so that most small firms, including one-person IFAs, small building societies, small friendly societies and the vast majority of credit unions, will pay about the same or lower fees after N2 than they did before.

• The FSA is awaiting the outcome of discussions between the Association of British Insurers and the Association of Independent Financial Advisers as to whether there should be future arrangements that would mirror the cross-subsidy from product providers to IFAs that currently applies within the Personal Investment Authoritys fee structure. This would reduce fees charged to IFA Networks and other large IFAs.

The future

Early next year the FSA will publish its Plan and Budget for 2002/3, which will set out priorities and budgeted costs for its first full financial year as the single regulator under the new regime. The Plan and Budget for 2002/3 will reflect the assessment of the risks to the statutory objectives that Parliament has set for the FSA.

Notes for editors

1. CP 111 Fourth consultation paper on the FSAs post-N2 fee raising arrangements including feedback on CP 95 is available on the FSAs Website www.fsa.gov.uk.

2. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

3. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.