Questions and answers relating to CP08/2

Our February fees paper is our annual consultation on the regulatory fees and levies we propose to set in 2008/09, and a specific policy proposal together with feedback from CP07/19.

The industry has told us that the one-month timeline for suggested policy proposals under consultation did not allow enough time for it to consider the policy proposals properly. As a result, wherever possible, we will set out our proposed policy changes to the fees and levies regime in a separate CP and give two months for responses. We began this in November 2007 with CP07/19, which covered various policy proposals covering fees and levies for 2008/09. CP08/2 provides feedback on the issues that were under consultation in November 2007.

The CP is relevant to all authorised firms and other bodies that pay fees and levies, as well as to potential applicants for authorisation and listing.

The consultation period for CP08/2 has two deadlines: 29 February 2008 and 28 March 2008. Each question in the paper gives the relevant closing date by which we invite responses. Please see Annex 2 of the CP for the list of questions on which we are consulting.

The total Annual Funding Requirement (AFR) – (the amount of our budget, adjusted by movements in reserves), is split between fee-blocks in proportion to the expected costs incurred in regulating those firms. The cost allocation is a materially accurate reflection of how we intend deploying our resources across the fee-blocks in the year in question. The allocation is forward-looking, so it is likely that the actual use of resources may differ from that assumed in the allocation. Where this happens, we take the difference into account in setting the subsequent year's fees.

Our budgeted Annual Funding Requirement (AFR) for 2008/09 is £320.7m, an increase of 6.9% compared to £300.1m for 2007/08. £11.5m is attributable to the impact of inflation and the balance to new investment as explained in our Annual Business Plan, with a small movement in reserves.

No. Our February fees paper is a consultation on proposed fee-rates and they may change for several reasons between now and May (when the rates are finalised by our Board). The factors that affect the final fee-rates include the funding requirement to be raised from each fee-block, the population of firms in each fee-block, and changes in firms' tariff data. So it is important you send us accurate and timely data in your Tariff Data Returns for 2008/09. Please see the fee tariff data section of our website for guidance notes on completing your tariff returns.

You can calculate the fees and levies you are likely to pay for the FSA and Financial Ombudsman Service (FOS) using the online fee calculator. It holds fee rates for both consultation and final rates since 2005/06.

Like last year, we will update the calculator with the actual rates once they are finalised in May 2008; this will include modiciations covering the new FSCS funding model. You will be liable for the fees and levies shown on your firm’s invoices, rather than the amounts the fee calculator indicates.

Due to the restructuring of the FSCS funding model, we are developing the fees calculator to incorporate the new sub-class structure. This work will not be completed until mid-April. This means firms will not be able to use this facility to calculate their FSCS levy until then. To help firms estimate their FSCS liability for 2008/09 we are providing some examples of typical firms’ calculations .

The FSCS will confirm its actual levy requirements for 2008/09 by early April 2008 so until then any indicative levy figures are only estimates.

We return financial penalties collected to the relevant fee-blocks in the following financial year. We can only establish the final amount of fines collected in the year at the end of March. We anticipate that the amounts that most firms will actually pay in 2008/09 will be reduced when we redistribute the financial penalties we received during 2007/08.

Chapter 6 of the CP explains that so far we have received penalties of £4.3m relating to 2007/08. Once our 2007/08 financial year ends on 31 March 2007, we will confirm the total amount of enforcement fines we received in 2007/08. We will illustrate how we will apply these penalties to the fee-blocks in our Policy Statement in May.

Yes. As in previous years, authorised firms can choose to pay their fees and levies by instalments. In 2008/09 Premium Credit Limited (PCL), the credit provider selected by the industry working group in 2005/06, will continue to provide instalment payments.

We announced in March 2006 that the facility offered by PCL will be available for firms for the next three three years, with an annual review of rates. We are independent of this arrangement and have no contract in place with PCL. If your firm wants to continue paying by instalments, you must renew your credit arrangements for 2008/09. As agreed with the industry, we will provide details of PCL's instalment plan in firms' 2008/09 invoices.

No. Firms can make their own arrangements directly through other credit providers if they wish to do so.

If you have any questions about the facility Premium Credit offers, please contact it directly on 01372 744525 or by emailing fsafe@pcl.co.uk.

FSCS - If your firm does not conduct business that could give rise to a protected claim by an eligible claimant for FSCS purposes, and it is not reasonably likely to do so, you can be exempt from the scheme – complete an FSCS exemption form. However, you will only be exempt for the compensation costs levy and the specific costs levy – you will still have to pay the base costs levy.

FOS - If your firm does not conduct business with 'eligible complainants' and is not reasonably likely to do so, it is exempt from the general levy. You can apply for exemption by downloading this FOS exemption form.

In our May 2007 Policy Statement (PS07/7) rules were introduced which explain that if a firm is not exempt from the FSCS and/or FOS on 31 March each year, it is liable for the full year's FSCS and/or FOS levy. If firms apply for exemption during the fee year, they will be exempt from the following financial year's FSCS and/or FOS levies. For example, if we do not receive your exemption form by 31 March 2008, you will be liable for FSCS/FOS levy for 2008/09. Firms that are already exempt do not need to notify us again.

If a fee payer does not pay its FSA invoices by the due date, interest (in addition to an administrative fee of £250) is payable on the unpaid amount. Interest is charged at 5% a year above the Bank of England's repo rate, accruing on a daily basis from the date the amount was due.

If your firm is holding a permission that covers activities you do not use for your business, you could be allocated to more fee-blocks than you need – and pay more fees than you should.

If you want to cancel some of the activities in your firm’s permission you must apply for a Variation of Permission (VOP). We must get your application by 31 March 2008 if you want to stop paying fees for that activity for 2008/09.

Firms are billed fees and levies on the basis of the regulated activities they have in their permission as at 1 April, or the date on which we received a firm's permission, or significantly extended it, whichever is most recent.

Alternatively, if you want to cancel your firm’s permission, follow our cancellation process. Please note if you apply to cancel a firm’s permission during the year (1 April 2008 to 31 March 2009), you will still have to pay full fees for 2008/09.

No. Our February 2008 fees and levies consultation paper (CP08/2) is a consultation on proposed fee-rates and they may change for several reasons between now and when our Board finalises them in May. The factors that affect the final fee-rates include the funding requirement to be raised from each fee-block, the population of firms in each fee-block, and changes in firms' tariff data. So it is important we receive accurate and timely data from firms in their Tariff Data Returns for 2008/09 (i.e. by 29 February 2008). Please see the fee tariff data section of our website for guidance notes on completing your tariff returns.

In past years we have either frozen the minimum fees for most fee-blocks or kept any minimum fee increases in line with inflation. In 2008/09 we have again sought to keep minimum fee increases to below 3% wherever possible. The exceptions are detailed below in the following four fee-blocks which fund £4.5m of the small firms enhanced supervision strategy:

• A012 – Advisory arrangers, dealers or brokers (holding client money): increase in minimum fee of £200 from £1,760 to £1,960; and an increase of 3.0% in lower charge bands with the high bands remaining constant;
• A013 – Advisory arrangers, dealers or brokers (not holding client money): increase in minimum fee of £200 from £1,650 to £1,850; and lower charge bands with the high bands increase by 3.6% with the high bands remaining constant;
• A018 – Home finance providers, advisers and arrangers: increase in minimum fee of £95 from £650 to £745; and an increase in all charge bands of 13% which also reflects the increasing work we are doing in the mortgage markets;
• A019 – General insurance intermediaries: increase in minimum fee of £40 from £410 to £450; and an increase in lower charge bands of 11.1% with the higher bands increasing by 6.0%.

• We have implemented minimum fee discounts. Firms pay only 50% of the minimum fee where they hold a permission for activities they carry out as a minimal part of their business, incidental to their main source of business.
• We are offering firms the facility to pay their invoices by instalments through a credit provider. Details of the instalment plan will be provided to firms with their 2008/09 invoices.
• We are providing a clear indication, through the online fee calculator, of what firms’ fees and levies will be – so they can budget more effectively.

The FSCS is funded by levies on firms we regulate.

In November 2007 we published PS07/19. This Policy Statement outlines our final policy for the future funding arrangement of the FSCS. The new FSCS funding model comes into effect on 1 April 2008. From 1 April, for levying purposes other than base costs levy, the FSCS will be split into five broad classes, based on five identifiable industry sectors:

• deposits;
• investment;
• life and pensions;
• general insurance; and
• home finance.

There will be two sub-classes in each broad class, divided along provider and distributor lines - with the exception of the deposits class.

Each sub-class will have a limit (or threshold) on what it could be required to contribute to compensation claims in each year. If a sub-class reaches its annual threshold the other sub-class in their broad class would be required to contribute to any further compensation costs (again up to a limit). Once a broad class has reached its threshold, other classes will be required to contribute according to their class size.

We will allocate firms to a class / sub-class according to their regulated permissions – so the type of business they are authorised to transact.

All firms contribute to the general running costs of the scheme (the base costs element of FSCS's management expenses), in proportion to their FSA fees. Firms are levied for the specific element of management expenses and compensation costs by reference to tariffs set for the relevant sub-class. Levy invoices are issued and collected on behalf of FSCS by the FSA in a single invoice covering FSA, FOS (Financial Ombudsman Service) and FSCS fees.

We only consult on the management expenses levy limit of the FSCS - the compensation costs levy, that is the amount levied to pay for valid claims, is determined by the FSCS and is not consulted on. The FSCS will confirm the final levy amounts (management expenses and compensation costs) by early April 2008.

The new FSCS funding model comes into effect on 1 April 2008. The transition to this new model will take the form of a 'clean break' as outlined in the FSCS Policy Statement PS07/19 – section 5.

On 31 March 2008 the FSCS will calculate the total balances in each of the previous contribution groups with final balances agreed by the end of May 2008. Firms will be notified of there balance in a credit/debit note received with your 2008/09 regulatory fees and levies issued from 1 June 2008. Firms will only receive credit or debit notes from a previous contribution group if they were a member of that group from 1 April 2007 until 31 March 2008.

All participant firms that are authorised as at 1 April 2008 and are not exempt from the FSCS will receive a debit or credit for each of the contribution groups, provided they were authorised before 1 April 2007. If your firm receives a credit, we will set this off against your FSCS levy for 2008/09, applying any excess to the remaining sum of your firm's 2008/09 regulatory fees. If this still leaves a credit, we will give you a refund. If your firm has a debit, we will include these in your 2008/09 invoice.

We cannot give you your individual FSCS debit or credit balance until we issue your invoice for 2008/09. Once the 'clean break' has been made claims made or levies raised after 1 April 2008 will be based on the new funding model.

For further information on the new FSCS funding model and 'clean break' arrangements please see:

• Policy Statement PS07/19 - FSCS Funding Review - Feedback on CP07/5 and made text.
• Consultation Paper CP07/5 - Financial Services Compensation Scheme Funding Review
• FSCS Plan and Budget 2008/09 [PDF] (pages 12-18)

The FSCS operates on a 'pay-as-you-go' basis, and raises levies to cover its projected annual costs. It normally undertakes a levy process once every financial year, although further levies can be raised if costs exceed those anticipated. We (the FSA) act as the levy collection agent for the FSCS. For 2008/09 levies, we will send invoices from June 2008, in line with the planned timetable in CP08/2 - Regulatory fees and levies 2008/09.

The FSCS's management expenses levy limit 2008/09 (which is being consulted on in the CP - Regulatory fees and levies 2008/09) is the limit up to which it can levy for management expenses (opertational costs) within 2008/09 without further consultation. Generally the actual levy raised is lower than the limit set.

The levy the FSCS can raise for their management costs is limited each year, according to the Management Expenses Levy Limit (MELL) we set after consultation. We are currently consulting on a MELL for FSCS of £30.24m for 2008/09 in CP08/2 (which includes budgeted management expenses of £24.74m and a reserve contingency of £5.5m) . The MELL for 2008/09 is £7.28m (19%) lower than the MELL approved last year.

There is also a limit to how much the FSCS can levy sub-classes for compensation costs in any one financial year under the new funding regime:

* The home finance provision sub-class can only be levied for home finance intermediation failures once the home finance intermediaiton sub-class reaches its threshold. Home finance lending / administration is not currently covered as compensatable activities by the FSCS and as such this sub-class would not currently be required to contribute to any other default outside of home finance intermediation.

The FSCS levies for its operational costs through the management expenses levy and compensation payments (compensation costs levy).

The early estimated indicative total levy for 2008/09 is £130.8m. This figure would be offset by an estimated amount of £100.1m in the current contribution group fund balances at 31 March 2008 , leaving an estimated amount of net new money to be raised of £30.7m in levies across the industry, inclusive of management expenses and compensation costs.

The actual amounts allocated to contribution groups will depend not only on the number, but also on the nature and value of the claims received. Previous levies are available on the FSCS website.

Under the new FSCS funding model there is no A016 fee-block. The contribution groups have been replaced by a nine sub-classes underlying the 5 broad classes listed above. The A016 balance will be distributed between providers and intermediaries in proportion to the contributions in 2007/08. Pensions review claims from 1 April 2008 will be allocated to Sub-class C2 for Life and Pensions Intermediation.

The FSCS pays compensation in line with its rules, which are made by us, and each claim is judged on its merits. It will only pay compensation where an actual loss has occurred and it does not pay compensation for market performance alone. It carries out extensive investigations when considering claims, including gathering information from investors, advisers and product providers.

The FSCS's internal Quality Assurance Department continuously reviews whether the Scheme's policies and procedures are being properly followed. The work of this department is itself reviewed periodically by auditors.

The existence of a fund of last resort for consumers helps maintain confidence in the sector and encourages people to use authorised financial services firms. Payment of FSCS levies is a requirement of authorisation for financial services firms, and, if necessary, we can take action against firms that refuse to pay.

Due to the restructuring of the FSCS funding model, we are developing the fees calculator to incorporate the new sub-class structure. This work will not be completed until mid-April. This means you cannot use it to calculate your firm’s FSCS levy. To help firms to estimate their FSCS liability for 2008/09, we have included examples of typical firms’ calculations. Calculations for FSA fees and FOS levies remain unaffected and the fees calculator operates as usual.

The FOS is funded by a combination of annual fees (general levy) and case fees. All non-exempt FSA-regulated firms pay annual fees; the case fees are paid by firms that have cases referred to the FOS. From 2008/09 the FOS proposes to charge case fees only for the fourth and subsequent case, per firm, per year.

Firms are allocated to an industry block depending on the type of business they conduct. There is a minimum levy that firms in each industry block must pay; the levy then increases in proportion to the amount of 'relevant business' (i.e. business done with private individuals) each firm does. Some industry blocks pay a flat fee only and do not pay a levy based on the amount of relevant business they do.

The FOS's draft budgeted income is £55.2m for 2008/09. The FOS general levy rates for 2008/09 are derived from the FOS budget (published in January 2008). In CP08/2 (Chapter 12) we are proposing that the 2008/09 general levy will raise 39% of the FOS's income, and case fees will raise 61%. While the proportion of income raised from the levy is higher this year, it is still the case that firms generating substantial numbers of complaints will pay a greater proportion of the costs of the FOS than firms with few or no complaints reaching the FOS.

Although the overall levy has increased, the level of increase varies considerably between industry blocks. This is mainly due to the re-distribution from mortgage endowments back to banking and insurance complaints. The industry blocks where the largest increases in the levy are proposed are Block 1 (Banks, building societies and home finance providers) and Block 2 (General insurance providers) where the proportion of complaints against firms in those blocks is expected to increase relative to the FOS's overall caseload.

Block 7 (Dealers in principal), Block 10 (Corporate finance advisers), Block 16 (Home finance providers and brokers) and Block 17 (General insurance brokers) will all see an increase in the minimum levy.

Yes. Please visit our Online Fee Calculator page.