Regulation  

FCA fine-tunes fees and levies allocation

    CPD
    Approx.30min

    The proposed solution is to create a new fee block specifically for firms that hold client money and assets (fee block A21). This fee block will apply to all firms that hold client money or assets but will not capture firms that merely control, but do not hold, client money. The creation of fee block A21 allows the FCA to discontinue fee block A12.

    As part of its impact assessment of the proposed change, the FCA compared actual cost recovery in fee blocks A12 and A13 this year, with the position that would have existed if fee block A21 had already been created. Unsurprisingly, firms holding larger amounts of client money and assets would have seen increases in fees paid. Based on the numbers used, the fee rates needed for the A21 fee block are £93 per £m of client money held plus £0.3 per million of safe custody assets held.

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    While there is no certainty of future fee rates being at, or close, to the numbers mentioned above, it is illustrative to consider what the effect might have been on firms categorised as medium or large Client Assets Sourcebook firms. Medium Cass firms are those that hold (as a maximum at any point during the year in question) between £1m and £1bn in client money resulting in an A21 fee range (based on the earlier figures) of between £93 and £93,000. The starting point for large Cass firms holding in excess of £1bn in client money would have been £93,000. The relevant figures for client assets for medium and large Cass firms would have been £3 to £31,000 for medium Cass firms and £31,000 and upwards for large Cass firms. Given the change in fee tariff base, it is not easy to make a comparison with current year fees for such firms but it is perhaps worth noting that the earlier fee per firm was £24,000.

    Overall, these proposals look sensible but firms that hold a large amount of client money or assets should be prepared for an increase in fees – and possibly a significant one.

    Income

    The consultation paper also provides clarification for intermediaries on the definition of income, which is the tariff base for a number of fee blocks, including those that relate to advisers, arrangers, dealers or brokers (A13), corporate finance advisers (A14), home finance providers (A18) and general insurance mediation (A19). In light of its discussions with firms, the FCA is minded to consolidate, clarify and simplify its definition of income for the above purposes and associated guidance. That said, there are still two areas where firms are asked to interpret their data so they are able to prove, if challenged, that their estimates are based on reasonable methodologies.