FSA to change fees allocation

The insurance industry's special project fees could be increased by more than £4m to cover the cost of European regulations, the FSA has warned.

A consultation paper produced by the FSA last week on proposed changes to its fees policy for 2009 to 2010, stated the watchdog was considering raising funds from firms that will benefit from the further development of the Solvency II internal model approval process.

Following on from 2008 to 2009 the FSA stated it planned to continue to use its special project fee regime and recover £3.2m in 2009 to 2010 from the 60 largest life, 60 largest non-life insurers and The Society of Lloyd's.

The fee would be capped at £95,000 for any individual firm or group and the society.

The document stated: "This will focus cost recovery on firms that will benefit from the FSA being in a position to approve firms’ internal models so that they can start to use them to calculate their regulatory capital requirements from day one of the new framework."

The regulator also proposed the introduction of a new flat fee of £20,000 for vetting and processing certain "significant transactions," such as share issues expected to raise more than £5bn.

Other proposals include extending the use of special project fees to recover £4.2m in 2009 to 2010 arising from costs to put the FSA in a position to meet its obligations to supervise compliance by firms with the new requirements and work with the industry to successfully implement Solvency II in the UK.

It also proposed extending the use of special project fees to recover the FSA's additional supervisory costs when a firm needs to undertake refinancing that requires restructuring of regulatory capital or raising extra cash, is also proposed.

Evan Owen, head of the IFA Defence Union, said the FSA was "bleeding the system dry" with unreasonable fee demands.

He said: "It makes you wonder how far things will go. Just think of all the money they have made in fines so far this year and yet still they want more.

"I do not know how the regulated are going to afford it. This is a continuing spiral of costs for its regulator. It does not affect the public directly but it adds to the burden of costs on businesses and that is passed on to the consumer."

The FSA is inviting responses to its consultation paper by 16 January.

In February the City watchdog will publish a consultation paper on proposed fee levels for 2009 to 2010 along side its business plan.