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FSA confirms 10% increase in budget

The FSA has confirmed that overall regulatory funding will see a gross increase of 10.1 per cent over the next year, from £454.7m in 2010/11 to £500.5m for 2011/12.

However enforcement fines levied over the previous year will mean that in total firms will pay 2 per cent less in regulatory fees compared to last year.

The minimum fee paid by 43 per cent of the FSA’s authorised firms, including many IFAs, will fall by 9 per cent from £925 to £844.

In its Business Plan for 2011/12 published today, the FSA says that due to the cost of regulatory reform it is not planning any regulatory initiatives and will cap headcount at the current level.

The regulator has also set up a workstream to focus on what support the industry needs to transition to the RDR, and has pledged to help the industry develop a simplified advice service.

The FSA says: “In respect of the RDR, the project is on track to ensure the intended principal changes with regard to adviser remuneration commission structure and training and qualifications are introduced from January 1, 2013.

“The FSA nevertheless remains conscious of the need to work with the industry to ensure that the changes occur in as smooth a manner as possible and to this end the FSA has set up a workstream looking at what support industry needs. In particular, the FSA will continue to assist industry in its development of a simplified advice service.”

Updating on the Mortgage Market Review, the regulator says that an indicative cost benefit analysis of the proposals will be published in the summer.

The regulator has admitted that its initial proposal to have a fixed 25 year term to assess affordability may not be appropriate.

It adds that it is not the FSA’s intention to ban interest-only loans.

FSA chief executive Hector Sants says: “The 2011/12 business year for the FSA will be a difficult one. We have to ensure that we are operating effectively as a supervisor as well as taking forward the key policy initiatives.

“The principal ones are progressing the domestic consumer protection strategy, implementing a number of key EU directives and influencing the continuing international regulatory reform agenda. All this has to be done at the same time as taking forward the preparations for a new regulatory structure.  

“The regulatory reform agenda remains on track to ensure the new structure will be ready in 2012. We will be seeking to deliver this agenda with a capped headcount.”

The FSA put out its consultation on the 2011/12 Business Plan in February.


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There are 19 comments at the moment, we would love to hear your opinion too.

  1. I fail to see how these massive costs can be justified.

    Does anyone monitor these costs which increase every year regardless of the quality of regulation?

  2. Why not let Europe take over regulating the UK, how much would that save for the Coalition? Can`t go on like this much more!

  3. ANY fines a regulator imposes on the firms IT REGULATES should NOT be allowed to keep as income. Anyone else think this could be an issue?

  4. Steven Farrall (Adviser Alliance) 22nd March 2011 at 11:45 am

    So, the FSA having failed by creating a proto-nationalising banking ruleboook that precipitated a double handful of banks into failure, and in collusion withe late and unlamented Chancellor destroyed the savings culture, and in conjunction with the BoE and treasury has inflicted on us massive inflation, now wants 10% more money to more of the same stuff that has alreaddy failed. Talk about Alice in Wonderland economics. Tossers.

  5. Austerity, what austerity, 10% inflation is absolutely outrageous and then impose cost burdens via RDR that will impact Banks fund houses and IFA’s.

    After RDR will they have job left, For the FSA I think it is called pricing yourself out of the market

  6. roger Holloway | 22 Mar 2011 11:48 am

    I have absolutely NO doubt that they will ALL still be very much employed after RDR Roger, however I’m sad to say after 31 years in this industry (face-to-face with clients that is) I will not. I have been in favour of regulation right from the begining all those years ago but alas, regulator after regulator has total lost the plot! Here I agree with Steven F …………. Tossers!

  7. 10%, now that is a nice round figure ” in the round”
    Where did they pluck that one from?
    Maybe we could all let 10% of our workforce go to pay for it.
    The fsa must be the biggest job creation scheme ever invented.
    Perhaps the coalition should get some advice from the fsa about how to get the country working again.
    Maybe we could all have nice non jobs at say 50 grand min pa. Sounds quite good “in the round”

  8. Softening up process prior to the real cost of the RDR being applied.

    For what its worth this is the feedback I sent to the chair of the TSC committee.

    Feedback : TSC 8th March sitting. Mr H Sants and Sheila Nicholls providing evidence.

    Not commenting on individual responses from Mr Sants and Mrs Nicholls but rather more “in the round” they appeared to be ill-prepared, poorly informed and lacking in ability to promote clear and concise confidence on the subject matter. If the subject matter were not so serious this could be used as student training material on how not to conduct yourself in a career interview!

    This can only emanate from either a lack of respect in preparation for the TSC or a manifest attitude of un accountability or simply incompetence. Either is unacceptable and insulting to both the TSC and the industry as a whole.

    I feel it is vital that key members of the Treasury select committee re-watch the Parliamentary TV recording of the evidence provided by Mr Sants and Mrs Nichols. The evidence provided is not limited to just spoken word. You will note their progressively deteriorating body language. Vagaries of assurances offered by Mrs Nichols when referring to FSA research of which she clearly had little or no retained knowledge. And some very muddled answers that unfortunately were not always pursued by the TSC.

    Mr Sants often answered questions while gesturing, as if speaking to Mrs Nicholls, indirectly seeking reassurance from Mrs Nicholls, indicating that he does not entirely have confidence or belief in the answer his giving.

    Sants and Nicholls are at the most senior levels of the FSA and have been promoting and steering the RDR since 2006. It is appalling that they do not have significant key information committed to mind. At their level in an organisation they should have retained knowledge that promotes confidence and enthusiasm to both promote and carry through their initiatives. This would be a prerequisite in any commercial organisation.

    As a diversion, I am minded to compare the TSC meeting with a presentation from budding entrepreneurs in an episode of the Dragons Den!

    We must remember what is being requested by way of an investment which is a total of £1.7 billion of which £.1 billion will be spent in the first 2 1/2 years of five-year plan. (Ponder on that figure for a moment. One Billion Pounds completely un necessary!) What is being promoted is a massive re-engineering of the existing industry of which the outcome is both uncertain and offers no guarantee of any change in consumer detriment. Ultimately this cost has to be recovered from the consumer.

    The £1.7 billion is being sought at a time of significant economic pressure where both business and consumers are painfully addressing the consequence of serious national debt of which the only road to recovery is growth and efficiency.

    The Dragons firstly need to establish the certainty of achieving a return on their capital. The budding entrepreneurs need to communicate clearly and effectively their business proposition and demonstrate they know the facts and figures.

    By utilising their personal experience the Dragons will expose any commercial weaknesses in the proposal or indeed that it has compelling opportunities.

    One of the most important outcomes of this process is when the Dragons encounter entrepreneurs that appear to be in denial to the commercial realities, or delusional in the face of a commonsense or logic. At this point the Dragons plead with the entrepreneurs to swallow their pride and cut their losses as the most sensible commercial decision no matter how bitter the pill.

    This scenario has a direct parallel with the FSA’s RDR.

    You know it, the adviser community knows it and the banking sector without the prospect of simplified advice also knew it.

    At what point does wisdom and commonsense prevail?

    I do not see how the pending European legislation and the necessity for the RDR to be implemented prior to this as a logical argument. The only defence offered by Mr Sants being the risk of a further two years of perceived consumer detriment. I would suggest that the TSC look more closely at all of the supporting evidence provided by the FSA with regard to “current” consumer detriment. I believe it is overstated by the FSA in the extracted statistic of file reviews. Indeed in the TSC meeting Mr Sants referred to data emanating from file reviews and qualified that in a recorded file review failure, the majority do not relate to mis-selling but simply compliance failures which has no consumer detriment. He made reference to the endowment mortgage pensions miss selling error which is simply unacceptable as this occurred many years ago and mocks the last 10 years of regulation which has been applied to address these issues. Similarly, the FSA should be challenged on their assertion that there is a lack of consumer trust with regards to IFA firms. There is significant evidence that shows that this is the last remaining sector in the financial advice industry that still has and commands significant consumer trust and this has been growing exponentially since the so-called beginning of the credit crunch era and the acrimony shown towards Banks in general and there miss selling in particular.

    The FSA needs to understand that the perfect world does not and will not exist. You cannot eliminate individual isolated poor practice no more than apathy and indifference from some consumers. You can learn from other areas where consumer detriment can be best combated by the consumer themselves. For instance take the police and its ability to deal with domestic burglary. The best approach has been to educate the public to be more aware and improve personal security in the home
    together with initiatives such as neighbourhood watch. ie. engage the consumer.

    Similarly, the NHS,s ability to deal with the growing problem of obesity is to educate the consumer on healthy diets and lifestyles. Initiatives such as the “five A day” which is now understood and taught at primary school level and is intuitive in society.

    The regulator is bereft of initiatives and ideas in this important area, mainly because of a lack of experience of client facing interaction. I am confident that if you ask 100 adult people if they are aware that the CFEB money made clear exists, 95% to 100% will say NO! This is not consumer education it is lip service despite being a great resource.

    The RDR should be scrapped pending both European legislation and of course the current economic climate that we all operate in. If consumer detriment needs to be tackled it could be done by low-cost initiatives that truly engage the general public and the financial services customer specifically.

    For example;

    Create some key reference points that can become a part of everyday financial
    life and part of financial education starting at the most appropriate school age.

    ACT (Strap line – “Its your money, ACT
    Sensibly” Etc Etc)

    Stands for A Advice and continued Service Charge ( ASC Understand and agree the

    C Compare ( Compare other advice options)

    T Trust ( Do you have trust in the firm to
    provide the advice and service you require)

    Educate consumers to ACT when seeking advice, there is a real chance that understanding and engagement on these topics will reduce consumer detriment.

    Formalise this process with my P5 document (attached) or similar, that should be a regulatory requirement at all initial new client meetings and consumers can have payment choice for services as existing and will be as close as we will ever get to eliminating remuneration or charge abuse, evaluating the professional status of the firm and a true method of comparison for the consumer.

    The term Commission for the sale of investment products should be removed and replaced with client agreed ASC (Advice and continued Service Charge). This can be fees , product charges, one off and regular recurring.

    Efficient, engaging, low cost with measurable results and is likely to be European proof.

    Why the RDR has the capacity to be a cataclysmic disaster.

    1 Fundamentally, it fails to recognise the seismic shift in economic
    consequence following the so-called global credit crunch since its conception in 2006 which reflected a significantly different economic climate. Government departments, Local authorities, large and small businesses alike are currently in the process of reducing cost while maintaining current levels of service and economic activity. Only the FSA alone feels it appropriate to add £1.7 billion worth of cost to an industry on what is no more than an experiment that has the capacity to threaten viability.

    The industry is grappling with continuous change such as the EU directive under solvency 2 and most recently the impact in respect of EU Gender Directive, which ironically could deliver greater “constructive” consumer detriment than any that the RDR seeks to solve.

    2 When eventually the consumer understands the implications through
    sensationalised media coverage in late 2012 ( ie, Example News Headlines: Be prepared to pay up to £450 an hour for financial advice in the New Year……….) it is likely to translate into a 40% drop in consumer activity as fear of cost becomes the justification for not addressing personal financial issues. This possible outcome should not be ignored. The general public are hugely influenced by media reporting irrespective of its accuracy. The best example we have of this is the issues surrounding the MMR vaccination. When the media reported a possible side effect, albeit from a spurious source, it took eight years before confidence and clear understanding to be regained.

    3 The FSA sees commission at a far to simplistic level. Commission is a
    legacy of direct sales. Modern financial advice is “point of entry intensive” and shoulders the regulatory costs, together with market research, knowledge administration and operational overhead. The cost reality is often far greater than the clients perception. It should have been renamed in 1994 when hard disclosure was introduced to something along the lines of “ASC” – Advice and Service Charge. See ACT above.

    4 Greater professionalism is prerequisite that nobody would argue. New entrant levlel 4 is perfectly sensible. The FSA’s approach to the subject of qualification is typically FSA. The weakness in the current system is the lack of structure and verification of individual continued professional development (CPD) which should be implemented and administered by the respective professional bodies. At present it is left to individual advisers integrity, ironicaly which may be the same individuals that concern the FSA with consumer detriment. There are no proposals for change to this? CPD should be reactive when significant changes occur in legislation, taxation and legal subject matter. The current push for level 4 simply represents many people spend the hours gaining no new knowledge, simply providing a profit windfall for the education institutes. Both the time and money could and should be spent on individuals pursuing the appropriate qualifications for the particular business area of advice that they specialise in. It is the pursuit of individual greater qualification that can demonstrate genuine commercial differentials for firms and should be voluntary for all existing authorised investment advisers. I believe the industry would see a formalised CPD as money well spent and reassurance for the consumer that advisers are continuously up-to-date.

    Formalised CPD that could directly report to the FSA register, would be a huge confidence builder for consumers which I believe was the FSA objective and offers low cost electronic policing for the FSA. This could be achieved at a fraction of the cost of the money being wasted in pursuit of level 4.

    This would create an environment where grandfathering would not be required as CPD maintains initially the status quo and moves forward all advisers from new entrants to those with many years service at the predetermined knowledge level.

    In principle I believe this is how every other profession works. Those individuals who see personal and commercial advantage in higher or specialist qualifications can focus on the individual requirements. It is natural competition and competitive advantage that will drive up qualifications providing that the economic environment justifies the additional time and investment. Crucially, therefore it is the economic environment and the viability of the industry that best serves the interest of the consumer.

    I feel better now having got that off my chest.

    In 2005 Prime Minister Tony Blair, who’s Government created the FSA, commented in a speech to the Institute of Public Policy,

    “Something is seriously awry when the FSA that was established to provide clear guidelines and rules in the Financial Services sector and to protect the consumer against the fraudulent, they now seem to be hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone”

    Which conveniently leads me to one final question:-

    Does Parliament have the power to stop this process?

  9. An absolute disgrace!

  10. The headcount will remain the same but costs increase by 10%. Pay increases and expenses all around i think.

  11. Pulbic sector funding is being cut by 25 to 40% following the collapse of the banks and the record debt that UK plc has been plunged into. It was the FSA by their own admission that failed to regulate the banks. It is a disgrace that the FSA expenditure increases by 10% (and therefore their fees) when the public sector services reduce by up to 40%.

  12. What a bargain! Let’s have two of them.

  13. I think the term simplified advice process should worry everybody in financial services particularly the IFA community. Hasn’t the regulator learned anything from the mistakes of bank assurance and their limited advice business model.

    I find it even more interesting that the European commission is seeking to ban execution only cases while our own regulator is still trying to promote the simplified advice model. Just goes to show that Hector Sants is completely biased towards banks and large insurance companies rather than concentrating his efforts in providing customers with good quality advice.

  14. The FSA was always the child of the institutions and you always want your children to have better than you had and so it proliferates.

  15. Rod @ 12.47
    What a polite guy you are!

  16. I think the FSA budget should have gone up between 50 and 100%.

    10% of matches make a fire.
    100% of matches make an inferno.

    Your pain cometh, but then you will be professionals.

  17. Sounds like the plan is to impose an increase of 2.5 times inflation before the NAO starts interfering with what the FSA authorises itself to fleece the industry for, without reference to anyone else.

    But even when (if) the NAO does start taking a look at what the FSA charges the industry for its very existence and for its never-ending stream of new initiatives in pursuit of that unattainable pot of gold at the end of the rainbow, little is likely to change. The government has already declared that the FCA will be accountable to no one but its own board which, of course, means accountable to nobody. It’ll just be another unaccountable monster with an insatiable appetite for other peoples’ money. Big salaries, big bonuses, big expenses, a big shortfall in the solvency of its final salary pension scheme, massive overheads for its prestige premises at Canary Wharf.

    Regulation continues to be a big growth industry all of its own, leeching the life blood out of the very industry it’s proved itself time and time again to be incapable of regulating with any degree of competence or integrity. An unbridled monster trampling roughshod over anyone or any body that dares to try to stand in its way, and all with the armour plating of statutory immunity from prosecuion. Yet these people actually believe that they’re doing a good job, whilst Sheila Nicoll’s response is to sit before the TSC smirking smugly in the arrogant knowledge that they’re all untouchable. It’s an affront to civilised society.

  18. Unbeleiveable arrogance that those who never pay levies and fees and such like feel they can so arbitrarilty come along and DEMAND that those caught in the crossfire shoulder even more costs and charges.
    When the regulator in charge so patently fails so many of those it is charged to look after (and surely that includes those of us who labour under its charge) how can it possibly justify even higher bills? This is an age of austerity – reducing adviser headcount and so forth and yet those advisers who remain will in turn be ‘taxed’ out of existence. Our work is fundamental to addressing the nations savings shortfall and yet we are constantly pilloried. These people need to get real – preferably real jobs in the real world where they start picking up the tab instead of mindlessly doleing it out to a captive audience. They have failed and should go quietly. By the way it does not wash to say the increase is absorbed and even reduced this year around by receipt of fines…..fees have still gone up and unjustifiably so…and any new 10% higher fee base the FSA gets away with will only in turn be used as the new base on which to add next years undoubted fee increase. You simply cannot make it up that people in ivory towers feel they can go on adding fees on fees, despite failing at their jobs and still expect an annual pay rise to boot!

    Finally who will end up paying? There is only one group and that is our clients – those few who we are able to engage with after so much regulatory burden and nonsense has prevented us advising those lower down the socio-economic scale – preversely exactly the people who need our services the most. I despair!

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