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FCA levies to plummet for smaller firms

Almost 7,000 advice firms could enjoy a drop in Financial Conduct Authority levies if a proposed restructuring of how fees are collected is approved by the regulator.

Currently, the FCA takes approximately £44.5m from firms in fee block A12, which hold client money. Because these firms have an average income of £19.1bn, this works out to an average fee of £24,038.

This works out to fees of £2.39 per £1,000 of income, the FCA said in its consultation paper on fees and levies, published today.

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Advice firms which do not hold client money fall under fee block A13, from which the FCA takes about £39.2m in fees.

Because these firms are quite a bit smaller and more numerous, this works out to an average of £6,200 per firm.

However, this works out to £6.89 per £1,000 of income, more than twice the fee rate of firms in the first group which are generally seen as carrying more risk because they hold client money.

The FCA said: “This result is counter-intuitive. Some firms in fee block A13 have pointed out that they could lower their fees by taking on the additional permission of holding client money and safe custody assets, even though they do not want it.

“There is no evidence that any have actually done so, but our fees are not intended to influence firms’ behaviour.”

To address this the regulator has proposed launching a new fee-block (A21) into which would fall companies permitted to hold client money.

The remaining firms in A13 would as a result have their fees cut back more than half, to £2.84 per £1,000 of income.

This would somewhat mitigate recent hikes in the cost of regulation.

This summer, the regulator revealed that advisers would pay 13 per cent more in fees for 2013/14, despite strong objections from the industry.

In contrast, firms in the newly-created fee block would pay £92.59 per £1m of client money held as well as £0.31 per £1m of safe custody assets held.

The FCA said: “We are aware that the initial modelling of these rates based on highest values of client money and custody assets held, shows that there may be large increases in fees for some firms.

“This is an inevitable result of moving to the new fee block with a different tariff base and we are reviewing the outcomes, looking at the spread of firms across client money and custody assets hodlings, to consider appropriate rates to recover our costs.

Under the new structure, which would come into effect from 1 April 2014, the levies collected to fund the Money Advice Service would also follow this model. However, the FCA’s proposals would result in a 63 per cent rise in the amount collected by Mas from fee block A13, which encompasses most advice firms.

Responses to the consultation are due by 6 January 2014.