FSA hikes next year's funding by 15.6%

Friday 3rd February 2012

The FSA has announced its farewell Annual Funding Requirement for the coming financial year – an inflation-busting increase of 15.6%.

It was at pains to point out that most of the extra cost will be met by larger firms.
 
The FSA’s overall budget, which is paid for by industry levies, is to rise from £500.5m in the current financial year to £578.4m in 2012/213 – the FSA’s final year of operation.  

The FSA is to be split into the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) next year, and it is the costs of implementing the change that are contributing to the rise. A ‘twin peaks’ model before the change will have to be introduced for a while, involving additional costs.

Modernising the FSA’s IT system alone before the handover is responsible for nearly one-third of the increase, and this is on top of the £32.5m costs of restructuring.

Announcing its new budget requirements, the FSA said it “recognises the difficult economic circumstances for many firms and is committed to keeping any essential cost increases to a minimum”.

The FSA said it will cap its own staffing levels for a second year running and also restrict core operating costs, broadly in line with inflation.

It said that a ‘significant’ part of the increase reflects the costs of implementing government reforms of the UK regulatory framework. The £32.5m costs equate to 28% of the increase in AFR.

Next year’s budget will also cover the costs of modernising the IT infrastructure to ensure it is a suitable platform before the transition to the FCA. This will require a £22.4m increase in the Annual Funding Requirement, which equates to 29% of the increase.

The increase in fees will be borne mainly by larger firms, but the FSA said medium-sized firms will see a proportionate increase, reflecting the type of business they conduct.

Currently 42% of the FSA’s authorised firms need only pay the FSA minimum fee, and for the third year running the gross minimum fee for firms will remain unchanged at £1,000.

The enforcement fines the FSA imposes during the previous year are returned to the industry by way of discounts to their fees in the following year. This year, anticipated financial penalties are estimated to be £58.7m.

Hector Sants, FSA chief executive, said: “The year to April 2013 is expected to be a challenging one for the FSA. We will be moving to a twin peaks model internally ahead of the split into the PRA and FCA, whilst at the same time continuing to focus on our supervisory role in a very difficult economic environment. 

“We are mindful of any increase in costs to industry and have continued to maintain headcount and keep core operating costs in line with inflation. Nevertheless the Annual Funding Requirement is still rising as we implement the government’s regulatory reform programme and invest in the necessary long-term IT infrastructure. The increases will be borne mainly by larger and more complex groups. 

“We have, however, minimised the impact on smaller firms by keeping the minimum fee at £1,000 for the third year running.

Mortgage brokers will find themselves handing over £13.43 per £1,000 of turnover in the year, up from £13.12.

A cost of £15m is in the FSA’s budget for intermediaries to pay for the MMR. The total levy paid by FSA firms to the Financial Ombudsman Service is to go down, from £42.7m to £17.7m. The FOS will be deriving more of its income from fees charged for cases handled.

The levy for the Money Advice Service is to rise, and will cost brokers £1.51 for every £1,000 of their  annual turnover, up from £1.36.