The FCA has increased its annual fees across the board for every financial services firm except managers and depositaries of investment funds and operators of collective investment schemes.
This is to cover an increase in the FCA’s annual funding requirement (AFR) of £35.2m, which is 7.9 per cent more than the AFR in the previous year. The FCA’s total AFR is £481.6m in 2015/16. In general, the fee increases are around 8.4 per cent, but financial advisers with more than £100,000 revenue a year are to be hit with the highest increase, of 10.2 per cent over last year, and the FCA will seek to collect £74.9m from advisory firms.
In its paper PS15/15, the FCA gives several reasons for the across-the-board increase to the AFR: to support the new competition objective, and increase efforts to combat market abuse; to invest in its employees; to invest in Project Innovate; and to upgrade and enhance technology. The strategic priority items were also set out in the FCA’s 2015/16 Business Plan.
Undoubtedly, the expansion into the competition objective requires extra monies to be expended. Although there is a certain irony in the FCA encouraging market forces to increase quality and drive down costs to consumers when the FCA is a monopoly provider of regulatory services and is increasing the cost for advisers – but such is the nature of regulation.
For everyone working in the financial services industry, the personnel costs of compliance staff have risen in line with an increased demand for skilled and experienced compliance officers. The FCA is no different in suffering from that wage pressure.
The increase also, one assumes, includes the £200,000 in extra pension contributions due to the FCA pensions mistake in 2011/13 as well as incremental pay increases. Personnel costs are also the largest of the items of FCA expenditure, accounting in 2013/14 for 59 per cent of the FCA’s AFR. Any pressure on wages will naturally have an increased effect overall because of this weighting. In addition, the FCA is now supervising a large number of consumer credit firms which will increase pressure on headcount.
What might surprise you is that despite total enforcement fines of more than £800m in 2015 to date, and almost £1.5 billion in the 2014 calendar year, the FCA received just £43.9m for their budget year 2014/15 to cover enforcement costs and to reduce the overall amount that firms pay in fees. Of this total, £3.7m was allocated to advisory firms.
The new Financial Services Act provides that all enforcement fines go to the Treasury, less any amounts to cover the costs of those enforcement cases.
