Insurers hit hard by funding increase for fees and levies

The industry will pay £126.9m more in fees and levies to the FSA, Financial Services Compensation Scheme, Money Advice Service and Financial Ombudsman Service, than it did in 2010/2011, a rise of 11.8 per cent.

Included in the figure is the FSA’s annual funding requirement which has risen to £578.4m from £500m, a gross increase of 15.6 per cent.

This increase will be borne mainly by larger firms, while medium-sized firms will see a proportionate increase reflecting the type of business they conduct, and 42 per cent of FSA-authorised firms will required to pay the minimum fee of £1000.

The FSCS levy has risen by £3.4m, while the advice service has doubled its fee to £86.8m from £43.7m. The advice service fee has risen sharply because it now includes the government’s debt advice service which was previously taxpayer-funded.

In contrast the Fos has bucked the trend and cut its industry levy by £25m to £17m.

A significant part of the FSA’s funding reflects the costs of implementing the new regulatory framework, the Prudential Regulation Authority and Financial Conduct Authority.

The costs includes £32.5m for restructuring and £22.4m for modernising IT infrastructure.

However IFAs will do comparatively well out of the proposals rates. The funding allocation for advisory arrangers, dealers and brokers who hold or control client money or assets will fall 19 per cent to £9.5m, while the cost for those who do not hold or control client money or assets will fall 3.4 per cent to £38.4m.

The enforcement fines the FSA imposed during the previous year will also be returned to the industry through discounts on fees. This year’s financial penalties were estimated to be £58.7m.

Hector Sants, chief executive of the FSA, said: “We are mindful of any increase in costs to industry and have continued to maintain head count and keep core operating costs in line with inflation.”

The insurance sector will be hit hard by the costs. Life insurers will see their levy rise 37.7 per cent to £61.1m, while the cost for general insurers will rise 36.7 per cent.

Otto Thoresen, director general of the Association of British Insurers, warned that excessive costs would be passed on to cash-strapped customers.

He said: “This massive increase in regulatory fees comes in a year when insurers already face increased costs associated with implementing the retail distribution review, Solvency II, changes to gender risk pricing and auto-enrolment.”

John Bloomfield, IFA for County Durham-based Paul Wilson Financial Services, said: “The positive thing is the FSA’s move to charge by the size of the firm rather than by adviser numbers. Charges are much fairer now.”