Future FSA fees to reflect sector risk and size of business

These proposals have been strongly influenced by the FSAs new framework for identifying, assessing and responding to risks to its statutory objectives (as was set out in A new regulator for a new millennium).

Chief Administrative Officer, Paul Boyle, said:

The FSA remains committed to being cost-effective and wishes to have a fair way of raising fees from the industry it regulates. The establishment of a single statutory regulator will inevitably mean some changes to the basis on which fees are calculated, but our proposals are not intended to bring about radical change. This is the first stage of consultation and we welcome views on our proposals.

Category of a firms business

The FSAs fee-payers will be grouped together into blocks of organisations offering broadly similar products and services. The risks that organisations in each fee-block collectively pose to the FSA meeting its statutory objectives will be the most important factor in determining the fees paid by each fee-block. In setting its fees in this way the FSA will continue to minimise cross-subsidy between different categories of business; business sectors will pay their own way except for a small number of cases where the industry agrees otherwise. Fee-payers that conduct a number of different categories of business, for example, acting both as a deposit-taker and as a financial adviser, would be a member of more than one fee-block. In total, the FSA is proposing 22 fee-blocks and is consulting on their definition.

An increasing proportion of the activities the FSA undertakes to meet its statutory objectives will not be firm-specific activities, but rather will be consumer-related and industry-wide work. The FSA will be consulting with trade associations and other interested parties to determine how the cost of non firm-specific activity might best be allocated across the different fee-blocks.

Size of a firms business

A firms fee will also reflect the size of its business, which is an indication of its potential impact on the FSAs statutory objectives. Different size of business measures will be appropriate for each fee-block. The FSA is consulting on the choice of these measures.

The FSA is keen to incentivise firms to be well-managed, but it does not believe that the best way to achieve this goal is through its fees. Instead, it will continue to encourage compliance by ensuring that well-managed firms will face less intense regulatory attention than their less well-managed competitors. This will mean lower internal compliance costs for well-managed firms.

New Applicants

The FSA is also consulting on a range of options for meeting the costs of reviewing applications from new market entrants. It believes that this process benefits both existing firms and new market entrants. Accordingly, it prefers the option under which half of these costs is met by the existing regulated community and the rest by applicants.

Next Steps

This consultation is the first stage in the process of setting the FSAs fees. The FSA is asking for responses to this consultation by 25 September 2000. In the light of the views received at this stage, the FSA will develop the remaining parts of the framework: allocating firms to fee-blocks, and consulting on the minimum level of fees for each fee-block and the way fees should increase in relation to size of business. The FSA expects to publish a response paper on this first stage of consultation in November, which will include draft rules. During the first quarter of 2001 the FSA will publish a second CP on fees that will contain indicative fee-tariffs. At this stage individual firms should be able to estimate what their fees will be when the FSA takes up its new responsibilities.

Notes for editors

1. The FSAs four objectives under the Financial Services and Markets Act are: market confidence, consumer awareness, consumer protection and fighting financial crime

2. The FSA is the independent body established by Parliament to regulate the financial services industry.

Appended information

This Consultation paper is available from the publications section of our web site. The direct URL is http://www.fsa.gov.uk/Pages/Library/Policy/CP/2000/56.shtml.