Experts warn the issue of how much power Europe has over financial services needs to be urgently tackled as senior European regulators push for the industry to pay more towards their costs.
Money Marketing reported last week that European supervisory authorities are looking at ways to cover the cost of their expanding remits. Both the chairman of the European Securities and Markets Authority and the chairman of the European Insurance and Occupational Pensions Authority have suggested one option would be to raise more money from financial services firms in member states, including the UK.
European regulators currently receive 60 per cent of their total funding from member states, with 40 per cent from the European Union. Around £890,000 of the Financial Conduct Authority’s 2013 budget is being diverted to European regulation, and £896,000 from the Prudential Regulation Authority.
Advisers have recently seen a 15.5 per cent year-on-year hike in regulatory costs from £32.8m to £37.9m.
Apfa director general Chris Hannant says: “To impose a levy the Esas would need substantive new powers, and I would be very surprised if these were granted as member states have jealously guarded against this in the past. Having said that, seeing as European regulators can already lay claim to the FCA’s budget perhaps they have managed to secure levy-raising powers through the back door.”
Zurich UK Life principal of government and industry affairs Matthew Connell says a levy is “effectively a form of taxation”. He says while national regulators are allowed to impose levies, there are also mechanisms for holding them to account, such as the Treasury select committee and the National Audit Office in the UK.
Connell says: “If this was to be explored at a European level, there needs to be certainty there are levels of governance in place.”
Cicero Group account manager James Hughes says: “With a levy, there is the possibility of UK firms paying twice for the same piece of legislation. Firms may find themselves funding the activities of a European regulator to draft the detail of new rules, and funding the national regulators to implement that legislation.”
Thinktank Open Europe head of economic research Raoul Ruparel says: “Increasing funding from market participants could present a risk as European regulators become funded by those they are meant to oversee. Funding from the EU budget – which is rightly being reined in – is also just a roundabout way of transferring national funds but with less national accountability. Therefore, any decisions about funding have deeply political consequences.”
Ruparel says the issue comes down to clearly defining regulatory powers between national and EU bodies, particularly given that different interests may begin to emerge in eurozone and non-eurozone countries.
Connell says: “It is about being clear on whether EU regulators have the same powers as national regulators, or whether power is being handed over to Europe. Once that is clear, the financing issues should become easier to resolve.”
Hannant says: “There are fundamental questions that I know are going to be asked around the future of Esas altogether. The value Esas adds is relatively small to the point of unidentifiable. They have got adequate resources.”
Pilot Financial Planning director Ian Thomas says: “What needs to be avoided is too many layers of regulatory decision-making which leads to a duplication of costs. The FCA is already levying higher fees on a smaller, more professional advisory base. Add in Europe and it seems like there is a bit of a gravy train going on.”