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FCA considers charging fees based on risk

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The Financial Conduct Authority is to carry out a review into how it calculates firms’ regulatory fees which could see the current fee block model scrapped with fees allocated on an income or risk basis instead.

In its regulated fees and levies consultation paper, published today, the FCA set out plans to review the way it levies the industry and explore possible alternatives for how regulatory fees should be allocated.

The FCA says it wants to go “back to basics” and look at whether it should segment the industry when it comes to allocating fees.

It also wants to explore alternative ways of segmenting the industry to using the current fee block model, and look at alternative ways of how the regulator’s annual budget is allocated to segments such as the size measures used and when this is measured.

Options under consideration include not segmenting the industry and charging fees based on income, segmenting firms via fee blocks or risk categories, charging fees on a retrospective basis, and charging fees in different ways depending on the firms involved.

The FCA plans to consult on alternative ways of allocating fees in May. If the regulator decides on fundamental changes to the way fees are allocated, the earliest it will implement the changes is 2015/16. If it decides just to tweak the existing model, the earliest it will implement the changes is 2014/15.

The FCA says: “We are conscious of the other policy development demands we place on firms and their representatives. However, this coming first year we are operating seems an appropriate time to have an open dialogue with the industry on how we recover our funding from them.”

FCA starting point for fees review:

FCA fees review diagram 480


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Wesley Haslett 9th April 2013 at 3:10 pm

    The penny has dropped in the Ivory Tower that with RDR there will soon be no IFAs left to fund their lifestyles hence the review

  2. Rob Derry (Brunel Mortgages & Loans) 9th April 2013 at 3:17 pm

    That sounds fair to me. Businesses that cause or have the potential to cause more problems for the regulator pay more. Much like Vehicle Excise Duty. If you’re going to drive a 44 tonne truck around causing congestion and damage to the roads you pay more than a cyclist which does neither.

  3. I had to check the date there. So, it is not 1st April and a sensible suggestion from the FCA. It seems to me to cover the basic principles of insurance. Where there is increased risk, there is increased cost.

  4. I agree with charging against risk. I am a mortgage broker and cannot give investment advice but had to pay a levie last year of £1000 due to failures such as Key Data, Lifemark etc. I queried it with the FSA but was told the cost would be borne by the whole industry. That hurt.

  5. In theory it sounds good, but it depends how you define ‘risk.’ Is a SIPP managed with a cautious investment mandate a higher risk product than a Stakeholder pension invested in a Far East Tracker? Is a Chartered / Certified financial planner advising an experienced investor on specialist investments a higher risk than a newly-qualified bank adviser selling an income bond to a pensioner as an alternative to a savings account? The FSA wasn’t good at categorising strategies / products / independence, so I’m not convinced that the FCA would be any good at categorising risk.

  6. Becoming a headcase IFA 10th April 2013 at 9:05 am

    would they take the number of complaints a firm has into account?

  7. If you believe this you will believe anything.

    This statement is to placate and calm the ever decreasing IFA community until they can find a way to manipulate the data and charge more.

    With a proposed 15% hike in fee levels for the next year, can anyone really, really, seriously believe this claptrap from a regulator yet to understand how it is going to perform its functions.

    Surely this sort of thing should have been researched and planned properly BEFORE the new regulator came into force this April.

    It beggars belief that the people who have devastated this industry did not plan how they were going to be paid by those poor unfortunate saps locked into earning their living by providing services to consumers who through circumstance and family commitments cannot seek another method of earning a living at present.

    You could not make this stuff up, these people are supposedly higher educated and purportedly qualified to regulate our industry and with Sants predictions about the number of advisers leaving the industry, either through early retirement for those of us who have had enough of this nonsense to those unfortunates who have been put on the dole by a combination of regulatory failings and changes to adviser remuneration which in effect render a major portion of the sector as unprofitable.

    Consumers will rue the day they believed that commission was an evil beast to be slain as the costs of regulation and the necessary fee levels needed to be charged to support these wastrels will put many of them out of the ability to obtain IFAservices.

    Not good enough, must do better.

  8. The single most relevant factor that should be taken into account in determining regulatory risk should be the number of complaints against IFA’s and the number of those complaints that end up being referred to the FOS. Surely, this is the definitive litmus test?

    Were such methodology employed ~ and why not? ~ then IFA’s would, I suspect, see a huge drop in our share of the total costs of supporting the FCA.

  9. Is there no end to the output of papers, questions, exercises, analyses etc from this place? Has anyone (journalists? FOI?) actually asked how many pages in total of consultancy and other documents they have produced in say the last 3 years? When are we meant to read it? Do they ever listen even if we do reply??
    They are getting paid fortunes so why arent they intelligent, creative or imaginative enough to just identify a problem (correctlyl!) and devise the most suitable solution within a month or so and then announce what they plan to do, giving time for feedback on CONCRETE plans, then act on the feedback where beneficial and then work out how best to implement any change NEEDED with the minimum of impact on the industry? Or maybe its that a dynamic, competent and effective approach like that would mean quite a few jobs wouldnt be needed??

  10. Marc Lee, Courion 23rd April 2013 at 11:19 am

    As the new UK financial regulator FCA looks to exert a tougher regulatory regime on financial services firms its review of setting firm’s regulatory fees based on levels of risk puts the spotlight on risk management. While the subject of financial risk is wide-ranging, flaws in identity and access management have exposed the industry to damaging financial frauds and breaches in customer trust and data protection. Moreover, as regulatory pressure is increasing, enforcing internal security policies and compliance standards will be critical to ensuring the smooth running of the business. This brings forward the need for stricter controls of how data is being accessed and used as well as for automated enforcement of security standards.

    However, financial organisations are struggling to manage access to sensitive information due to the poor visibility into where the greatest access risk vulnerabilities lie and the lack of effective tools for real-time monitoring and management of this risk. Therefore what is required is a comprehensive access risk management strategy that provides real-time intelligence into access risk and enables the automated provisioning of access controls across the organisation. The good news is that technologies that leverage better access intelligence and real time response mechanisms to incidents can shut down these gaps, helping to mitigate risk profiles at a time when regulatory scrutiny is intensifying. By marrying real time insight into access risk with automated enforcement of compliance and access governance policies, financial organisations will be able to meet the highest security standards and turn the increasing regulatory pressure into an opportunity to strengthen consumers’ confidence in their services.

  11. @ Marc from Courion
    and how much will that cost?
    Will it be a case of “we will cut your fees as you are low risk, but it will cost you a small fortune to prove it”

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