In general, the changes suggested will not have a huge impact for the majority of regulated firms. However, the proposals do add an extra layer of complexity and firms should endeavour to understand them to ensure that their FCA permissions are correct and that they are not paying more fees than they need.
In April, the FCA celebrated its first birthday (marred somewhat by allegations of market abuse in the insurance sector). One of its tasks in its first year was to undertake a review of the fees regime that it inherited from the FSA. It has now completed this work and its latest consultation paper on Regulated Fees and Levies: Rates proposals 2014/15 (CP14/16) provides feedback on this exercise.
The bottom line is that while the current system may appear unduly complex, neither BDO (the consultants asked to review the regime) nor the stakeholders that engaged with the FCA during the process, have come up with anything better.
The consultation paper briefly discusses two alternatives methods that the FCA had suggested to stakeholders – a simple revenue-based system and an alternative approach based on four firm category blocks. Neither method was considered an improvement on what the FSA came up with. So it looks as though the current methodology is here to stay, at least for the time being.
The new consultation document also provides feedback on CP13/14 – the FCA’s paper released in October 2013 about proposed changes to the underlying policy of the fee and levy regimes. This included the proposal to establish a new fee block for firms holding client money and assets.
The original proposal arose from the fact that the only distinction between fee block A12 (advisers, arrangers, dealers or brokers holding or controlling client money or assets or both) and A13 (advisers, arrangers, dealers or brokers not holding or controlling client money or assets or both) is the client money assets permission.
Broadly speaking, the new proposals were welcomed and will be taken forward with one important amendment. As explained above, the proposals began from the distinction between fee block A12 and A13. A point raised during the consultation process was whether firms with client assets sourcebook (Cass) permissions in other fee blocks (not currently in A12) would now fall into the new fee block.
The FCA has clarified that this is not its intention and has consequently clarified the new definition of fee block A21 to make it a pre-condition that the firm should also be in fee block A13.
In my view, the FCA may live to regret this decision. While it may be the case currently that most Cass supervision costs are borne by firms in the current A12 fee block, there is no inherent link between “holding client money and assets”, and “advising, arranging or dealing”.
There is, therefore, the possibility that firms that hold client money or assets (potentially to a significant degree), but do not fall into A13 would have a significant fees advantage over a similar firm that did fall into A13. If, for example, you act purely as a fund manager, you fit into the A7 fee block.