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.
If you hold client money or assets in addition, regardless of how much you hold, you will not fall into the new fee block, despite attracting potentially significant supervision costs with respect to its client/assets activities.
Funding
The second chapter of the consultation paper discusses the FCA’s annual funding requirement and its proposed allocation to fee blocks. Overall, the FCA expects a very modest increase in total spend of just 1.4 per cent (compared with last year), bringing its supervision costs to £452m. The comment that this increase is “driven by our new competition team to deliver our competition objective” suggests that overall budgets remain pretty tight.
It is interesting to note that, despite this, the FCA has still budgeted a £4.4m funding requirement relating to scope changes for firms affected by alternative investment fund managers’ directive (AIFMD).
Other points of interest arising from the way in which the FCA proposes to allocate costs to fee blocks include:
- A whopping 42 per cent increase in the FCA’s prudential fee block. This increase arises from the FCA having spent far more time on the prudential supervision of wholesale and retail firms than was anticipated.
- Fee blocks A7 (fund managers) and A9 (operators of collective investment schemes) will pick up a larger share of the overall costs with allocations increasing by 11.7 per cent for A7 and 24 per cent for A9. This is not surprising given the significant costs associated with AIFMD.
- A13 sees a decrease as a result of the new A21 fee block for (most) firms holding client money or assets.
- Periodic fees for authorised firms.
The good news is that the FCA proposes to leave the minimum fee unchanged at the current level of £1,000. The expectation that 42 per cent of firms will pay only the minimum fee is another reminder of the very long tail of small firms that the FCA supervises.
