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FSA increases annual funding requirement by £45m

The Financial Services Authority is increasing its proposed Annual Funding Requirement for 2011/12 to £500.5m, up from £454.7m in 2010/11, a gross increase of 10.1%

The regulator says the increase will be borne by larger firms, reflecting the resources applied to intensive supervision of high impact firms.

However, 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 means that in total firms will pay 2% less than last year.

Most firms authorised by the FSA pay a minimum fee, with further variable fees to be paid depending on the type of business a firm conducts.

The gross minimum fee for firms will remain unchanged from last year but, taking into account the enforcement fines discount, the net minimum fee will be 9.4% less than last year: 43% of the FSA’s authorised firms will only pay the minimum fee.

The FSA is increasing its AFR for home finance providers and administrators by £3.4m, 36% increase, which it says mainly reflects enforcement work on the treatment of customers with mortgages in arrears.

The FSA says the increased AFR will be used to fund much of the work that was started last year as the FSA continues to implement key areas of the substantial international regulatory reform agenda whilst maintaining increased supervision of firms and delivering on its statutory objectives.

The key areas that the AFR will be used for in the coming year are:

  • Delivering effective, on-the-ground supervision of firms;
  • Completing the organisational and technological change that underpins the move to an intensive supervisory regime;
  • Continuing to deliver a tough and determined enforcement approach that achieves results;
  • Taking forward the domestic and international policy agenda, particularly in respect of the banking agenda set by the Basel Committee;
  • Ensuring that the wider policy agenda primarily mandated by the European Union is delivered, and;
  • Preparing the FSA move to the new structure of the Prudential Regulatory Authority and Consumer Protection and Markets Authority.

Hector Sants, chief executive of the FSA, says: “The completion of the FSA’s changes to move to a more intensive approach to financial services regulation has inevitably led to some increase in the Authority’s cost base.

’However, we are very mindful of minimising the additional cost to firms and are pleased that net of enforcement fines, the actual amount we will be billing firms will be falling by 2%.

“Longer term, the implementation of new UK and EU policies, along with the cost of managing the transition to two new authorities will continue to put upward pressure on our cost base. However, in general, we would expect these increases to be borne by larger and more complex groups and would hope to minimise the impact on smaller firms,”

The total cost of implementing regulatory reform is yet to be calculated.

The HM Treasury consultation document issued in July 2010 made an initial estimate of £50m and work is under way to quantify this more precisely. In 2011/12, the FSA believes the direct costs will be £10.9m.

The FSA also estimates that there will be substantial indirect costs as staff reschedule other work to create the capacity needed to implement the changes. 

This will involve a temporary increase in The FSA’s risk appetite in some areas, which is expected to predominantly focus on smaller firms and this is reflected in the fee allocation for this year. This will be set out in more detail in next month’s Business Plan.



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  • Andy Valvona 1st February 2011 at 5:16 pm

    “The good old MCCB had an annual budget of £4.5m!”

    Yes – and did not regulate anything other than Mortgages! I think there is a much wider world out there in Financial Services than just mortgages, and the FSA spends most of it’s time looking at these other areas.

  • bill wells 1st February 2011 at 4:40 pm

    Half-a-billion quid. Say it quick and it doesn’t sound that much.

    Trouble is, it’s half-a-billion quid too much and, in any case, its only a fraction of the cost of all the damage they cause, the extra workload on firms and the extra cost generated for clients to pay.

    Clients pay this £500million indirectly, but they also pay for the massive extra amounts of form-filling, red tape and non-profitable hours spent by the industry in satisfying this out-of-control regulator.

    Let’s call it £10 billion cost to Joe Public and I suspect it won’t be an exaggeration.

  • Bill Wells 1st February 2011 at 4:31 pm

    Pay your fees or they’ll send in the tanks.

    UK democracy 2011

  • Bill Wells 1st February 2011 at 4:30 pm

    Pay your fees or they’ll send in the tanks.

    UK democracy 2011

  • Jonathan Burridge 1st February 2011 at 2:42 pm

    I have just checked the calendar to make sure it was 1st February and 1st April.

    It would be comical it it were not so desperately sad. The FSA do a fine job, we are told, but every year fees rise, why cant they act like the industry it regulates and attempt to save money????

  • Damien Brassneck 1st February 2011 at 2:20 pm

    SHOCKING…MCCB remember them? They operated on an annual budget of £5m and provided a much more appropriate oversight of the Mortgage Market!

  • dave 1st February 2011 at 2:13 pm

    The good old MCCB had an annual budget of £4.5m!

    The FSA already charges 100 times the amount the MCCB took – and its fee increase is 10 times the previous regulator’s annual income!

    Planet FSA really is out of touch with the real world!

  • Robin 1st February 2011 at 1:22 pm

    What on earth has been created by Govt that swallows money in increasingly vast quantities, at such difficult times. It must be easy just upping your income by increasing fees, with no way around them for the poor mugs tied in to the FSA. This whole monster needs axing and the market leaving alone. After all the one major catastrophy happened when the banks collapsed due to the FSA & Labour not watching/regulating, as they should have been. They were probabley counting their money!

  • nick 1st February 2011 at 1:16 pm

    Great good to see that the FSA are still increasing their budget when everyone else is cutting theirs.
    Great work if you can get it!