The FCA has abandoned a full review of the way it calculates firms’ regulatory fees after deciding to continue with its current methodology following industry talks.
In April 2013 the regulator set out plans to explore alternative methods for allocating regulatory fees, including fees based on income or risk.
It was set to issue a discussion paper on the subject last autumn but in November said that following industry talks this had been delayed until the first quarter of 2014.
However, the FCA says it has now decided to retain its existing approach and will not issue a discussion paper on the subject. This follows industry talks which considered the alternatives of income-based and risk-based fees.
The regulator says it decided not to issue the paper because its current methodology “makes a stronger link between where we allocate our resources and the fees charged than either of the alternative approaches would” and because it can operate its current approach “efficiently”.
Apfa director general Chris Hannant says the FCA “has given up too easily”.
The trade body has been calling for regulatory fees to be based on income, arguing this would make adviser costs more predictable.
Hannant says: “We still believe this would be do-able and are disappointed that the FCA is not continuing with its review.
“Advisers are still paying a disproportionately large share of the regulator’s costs, given that they represent a very low risk of consumer detriment. We urge the FCA to restart its review.”
An FCA spokesman says it decided not to press ahead with the review because stakeholders were unable to reach a consensus over how the fee calculation should be reformed.
Philip J Milton & Company managing director Philip Milton: “The FCA has missed an opportunity to make the system fairer. However, it is easy to see why the regulator decided it would be too difficult – finding a measure to calculate income which worked for firms of all sizes would have been very complicated.”
Yellowtail Financial Planning managing director Dennis Hall:
“Regulatory fees make up a significant part of advisers’ outgoings and it is crucial we are given the opportunity to respond to these proposals through a proper consultation process. The FCA may say it has spoken to industry stakeholders but it has not spoken to me or to people like me.”
Why the FCA scrapped the review
In its industry talks, the FCA compared its fee block methodology with two alternatives. Under the first, fees would be charged in relation to firms’ income; under the second, firms would be split into four risk-based categories.
The FCA acknowledged that under its current approach, all firms in a sector pay extra fees if it increases its supervisory efforts in that market, which would not be the case under an income-based model. But stakeholders raised concerns about the difficulty of developing a single measure for calculating income. The changes would apply to firms including banks, building societies, investment managers and advisers.
The FCA also commissioned a study from BDO on the alternative models, which found that income would be an “adequate” metric to use but identified potential issues such as the definition of ‘income’.