RegulationNov 29 2022

FCA proposes £5k fee for financial promotions products

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FCA proposes £5k fee for financial promotions products

In a consultation paper, Regulatory fees and levies: policy proposals for 2023/24, published today (November 29), the regulator said this fee will not be treated as a 'variation of permission' so the full charge will be payable whether or not the applicant is already authorised by the FCA.

Applicants will be charged separately for each new application, without taking account of the number of product types within a single application. 

Where an applicant also applies for a Part 4A permission, the FCA said its usual rule will apply and they will pay only one fee – the highest.

“A firm which already has a permission under section 55NA and subsequently applies to extend its scope, for example to promote additional financial products, will be charged 5 per cent,” it said. 

“If it applies instead to reduce the scope of its permission, there will be no charge.”

Subject to parliamentary approval, the financial services and markets bill will amend FSMA to impose a requirement on all authorised firms, preventing them from undertaking financial promotions on behalf of unauthorised businesses. 

Firms will have to apply to the FCA for permission approve financial promotions of types of products. 

The FCA said: “We are recovering £2.4mn project costs in 2022/23, spread across the full population of fee-payers. We expect to consult shortly on the proposed regulatory regime.

“We do not anticipate material ongoing supervisory costs affecting periodic fees, so these will be absorbed within existing resources.”

The consultation paper sets out the FCA's proposed policy changes to the way it will raise FCA fees from 2023/24. 

Application fees are charged when firms apply to be authorised or registered by FCA. 

Until January 2022, when the regulator introduced a new pricing structure, most FCA application fees had not changed since they were set by its predecessor, the Financial Services Authority (FSA), more than 20 years ago. 

“Consequently, their value had been eroded by inflation,” it said. “To prevent the charges falling behind in the future, we said we would increase them annually in line with inflation.”

The City watchdog said application fees do not recover the full cost of the regulatory gateway. 

“In 2021/22, the cost of our authorisations division was £33.9mn. This excludes associated costs such as legal advice and systems. 

“The revenue from application fees in 2021/22 was £6.8mn, or about 20 per cent of the cost our authorisations division incurred.”

For 2022/23, the FCA expects the revenue to be about £9mn under the new pricing structure. 

The balance of the cost incurred is recovered through annual fees paid by existing fee-payers.

“Since all firms benefit from effective policing of the perimeter, it is reasonable for the market to share the costs of the gateway,” it said.

Fee rates assumptions

FSMA allows the FCA to recover expenses incurred which means its funding requirement (AFR) is determined by the budget. 

In April, the FCA proposed to hike its AFR for advisers by 5.2 per cent, from £82.3mn to £86.5mn.

The regulator said in its fee proposal document that its overall AFR is estimated to go up by £26.4mn in 2022/23, an increase of 4.3 per cent from £613.7mn in 2021/22 to £640.1mn. 

However, in its feedback statement later in June, the FCA reduced the overall AFR for 2022/23 from the proposed £640mn to £630.9mn.

“We recover the AFR by distributing it across fee-blocks which group together firms with similar permissions,” the FCA said.

“This ensures that their fees reflect the different regulated activities they undertake. Many firms fall into more than one fee-block because they hold a variety of permissions.”

 

The FCA put this change in funding requirement down to a mixture of ongoing regulatory activities (£611.3mn) - ie, the baseline cost of running the FCA, as well as new responsibilities (£3mn), “scope change[s]” (£10.4mn), and National Insurance rate increases (£3.1mn).

The greater part of the AFR is taken up by the ongoing regulatory activities budget which represents the standard cost of running the FCA – in addition to the direct costs of supervision, it includes the costs of common services such as finance, IT and human resources, legal department, routine policy development, accommodation and equipment.

The Ora budget in 2022/23 is £617.4mn – 98 per cent of the AFR.

“We are committed to keeping Ora flat in real terms and therefore limit its annual increase to the consumer price index (CPI),”it said. 

“Although the CPI is currently substantially elevated, we are determined to manage the rise in FCA costs as far as feasible over the coming year to ease the pressure on fees, particularly for smaller firms.  

“We propose to take the December 2022 CPI as a fixed measure and benchmark our estimated costs against it.”

It added: “We are giving due consideration to inflationary pressures as we finalise our budget for 2023/24 and do not expect it to reflect the full increase in inflation as measured by the CPI, but we are not in a position to give an indicative figure at this stage.”

Fees for principal firms of ARs

In 2021/22, the FCA introduced flat-rate charges for each appointed representative (AR) that principal firms have registered. 

The revenue raised contributes towards the work it is undertaking to tackle the harm caused by ARs. 

The FCA said this work includes setting up a new department to conduct enhanced supervision of principal firms, publishing and enforcing new rules for principal firms, and strengthening the authorisations gateway. 

“We are monitoring the funding needs of our continuing work on ARs and the most appropriate manner to recoup our costs,” it said. 

“The current charges meet our anticipated funding requirements, so we propose to maintain them for 2023/24. 

“We will review them again when we consult on the rates for 2024/25.”

sonia.rach@ft.com

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