Taking over the regulation of the consumer credit sector has cost the FCA more than anticipated, its latest board minutes reveal.
Minutes of the regulator’s January meeting, published today, show it has been forced to employ “significant extra resource” to achieve delivery to timeframes. It says most of this was specialist external resource.
The FCA says extra costs have also been incurred through further research on firm volumes and the decision to require consumer credit firms to apply for new regulatory permissions rather than “grandfathering” from the existing Office of Fair Trading regime.
But the FCA says grandfathering firms would have led to deferred costs though increased supervision and enforcement.
The minutes say: “The board asked whether the cost could be reduced, but recognised that any reduction may decrease the readiness of the organisation to supervise and authorise consumer credit firms.
“Also, if less were spent on communicating with firms, it could lead to a significant amount of (potentially unintended) unauthorised business.”
The minutes say the cost of the implementation of consumer credit regulation will be recouped from consumer credit firms over a 10-year period to make the costs “manageable” for firms. Normally costs would be spread over three or four years.
The minutes also noted that due to the “stretch on resources being used for consumer credit”, the cost of the FCA’s project on the Alternative Investment Fund Managers Directive had also increased.
It says costs relating to the European directive had risen as a result of: “the delay by firms in submitting their applications; the complexity of applications received; absorbing two other non-discretionary projects; and the use of additional contractors, due to the stretch on resources being used for consumer credit”.
In March 2013 FCA chief executive Martin Wheatley said the regulator’s expanding remit – including taking on the consumer credit sector and an objective to promote competition – would inevitably lead to higher industry costs.
The FCA has a budget of £432.1m for 2013/14 – 23 per cent lower than the FSA’s £559.8m budget in 2012/13.
A spokesman for the FCA says the costs of implementing the consumer credit regime will only be paid for by firms in that sector.
The spokesman says: “None of the set-up costs incurred on consumer credit have been charged to firms that are already authorised by us under FSMA or other regimes, as it is an important principle that the charges should fall to the firms directly involved and should not be cross-subsidised by other types of firms.
”We will recover these costs through the periodic fees of consumer credit firms once those on interim permissions are fully authorised.”