FSA consults further on mortgage and general insurance fees

• insurers who also act as intermediaries;

• mortgage lenders and administrators who also act as intermediaries; and

• mortgage and insurance intermediaries who receive payments from lenders and insurers on an alternative basis to straightforward commission or fees.

Previously in CP180: Fees for mortgage firms and insurance intermediaries, the FSA proposed a framework for charging fees to mortgage lenders and firms who advise on, or arrange mortgages and general insurance products. Application and annual ('periodic') fees will be determined by the volume of this business which a firm does. For advising and arranging activity, volume will be measured by the annual commission, brokerage and fee income earned from these activities. The proposals in CP180 provide a framework that is suitable for the vast majority of intermediaries.

However, there are a number of firms (of the type listed above) that sell mortgages or general insurance products where the proposed income measure will not accurately capture the size of their business because these firms do not earn commission for selling their own products. CP192 extends the fee-raising framework set out in CP180 to cover these firms as well.

The key proposals in CP192 are:

• a method for calculating a notional income figure for business which does not generate commission in the normal way; and

• changes to the fee-block arrangement set out in CP180 for insurers carrying out intermediary activities.

So, where a lender or an insurer advises on or arranges their own products, the FSA is proposing to create a notional commission figure - equivalent to the amount a 'pure' intermediary would earn by conducting the same amount of business - by multiplying the volume of lending/premiums by a factor. The proposed factor for mortgage lending is 0.5%, and for insurance it is 10%.

This figure will be added to any 'normal' commission earned by the firm.

Finally, where a firm receives any payments from lenders or insurers for its advising or arranging, other than on a commission basis, the weighting factor is applied to the business generated as a result, again to get to a notional commission figure.

The FSA is proposing to use this volume of business measure as the basis for determining a firm's periodic (ongoing annual) fees, as well as for determining which application fee band they will fall into.

Proposed application fee bands and rates were consulted on in CP180 (see note 2). Feedback on CP180, including final fee bands and fee rates will be published in late September.

General insurers who also act as intermediaries

Changes to fee-block arrangements All authorised firms are divided into groups that carry on similar types of regulated business, called fee-blocks. Currently, authorised general insurers belong to fee-block A.3. Previously, CP180 proposed that these firms would not be placed in A19 (general insurance intermediaries) even if they were undertaking intermediary activities. But CP192 now contains an amendment to this proposal so that insurers who carry out intermediary activities will be allocated to both A.3 and A.19 fee-blocks. This will ensure consistent treatment between insurers who sell their own products, and 'pure' intermediaries (who were the focus of the proposals in CP180).

The FSA welcomes comments on the proposals contained in CP192 by 27 October 2003.

Notes for editors

1. For more details about FSA fee blocks see our press release from earlier this year

2. CP 180 outlined proposals for a series of bands within each fee-block. These are still subject to consultation and final fees and fee bands will be published in late September.

   Fee-block

   Authorisation Fees ()

   Early application

   Standard application

   	Authorisation fee bands	Electronic	Paper	Electronic	Paper
   A.2 - Mortgage lenders & administrators	Gross advances (m) 0 - 100 >100 1,000 >1,000	7,750 12,750 22,500	8,000 13,000 23,000	9,750 14,750 24,500	10,000 15,000 25,000

   A.18 - Mortgage advisers and arrangers; and A.19 - General insurance intermediaries

   Annual income (m) 0 - 1 >1 25 >25

   500 8,750 22,500

   600 9,000 23,000

   1,100 10,750 24,500

   1,200 11,000 25,000

3. CP 192: Further consultation on fees for mortgage firms and insurance intermediaries can be found here.

4. 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; securing the appropriate degree of protection of consumers; and fighting financial crime.

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