The regulator's proposed additional levy on appointed representatives could see "a large migration of firms" from networks to directly authorised or leaving the market altogether, the Association of Mortgage Intermediaries (AMI) has warned.
On April 20 the Financial Conduct Authority opened its consultation for periodic fees for the next financial year (2021/22) and further FCA fees policy proposals.
While its consultation paper detailed a small rise in advisers' annual fees, it also proposed a periodic flat fee of £250 for each appointed representative, which will see it raise an additional £10m of funding.
The FCA said principal firms will pay the periodic fee based on the number of ARs they have on the Financial Services Register on the first day of a fee-year, which begins on April 1.
This means large advice firms could have the same additional cost as a small mortgage firm, which has ARs.
Mortgage advisers have already seen their Financial Services Compensation Scheme fees rocket. They will be charged £11.5m towards the 2021/22 levy, half of the £23m forecast in January but still four times as much as they paid last year.
In the AMI’s response to the consultation, it said the cumulative effect of the changes in FCA periodic fees and application fees, the new levy on principal firms for ARs and IARs, increases to FOS levies and case fees, the large increase in FSCS levies and the substantial increases of PII premiums exclusions and excesses, was “having a profound effect on firms’ profitability and potentially their viability.
“It is not inconceivable that current network models will be forced to change and that there could be a large migration of firms from AR to DA or leaving the market,” Robert Sinclair, chief executive of the AMI, said.
He said the move effectively created a backdated levy on some firms which, he said, was unfair.
He said it should have been included in the November policy paper with a full cost benefit analysis.
Sinclair said: “This £10m additional charge is a disgrace. The industry deserves a better explanation on why from this new FCA management team.”
The FCA said its decision came after it found “significant shortcomings in principal firms’ understanding of their regulatory responsibilities for their ARs”, and would help fund additional work in this sector.
But Sinclair added: “In proposing these changes, the regulator must consider whether it would be comfortable with such a significant change to the mortgage intermediary sector structure and its ability to manage and control such a migration.”
Adviser trade body Pimfa also voiced its disappointment at the FCA’s shortened five-week consultation period and its proposals around ARs.
In its own response to the FCA consultation it said it had concerns that the FCA was introducing a flat fee for firms “without justification or evidence” of the issues that it is seeking to address.
Pimfa argued that the proposals put forward directly penalised firms which are, in theory, best placed to have effective supervisory models of their ARs.
It stated that larger firms which have an extensive network of ARs tended to have invested a significant amount of money in their systems and controls and were, by virtue of their size and scale, subject to enhanced supervisory oversight.
“To this end, the fixed fee approach taken by the FCA is flawed,” Simon Harrington, senior policy adviser at Pimfa, said.
He added: “It is extremely disappointing that the FCA has taken these steps to ask firms to contribute an additional £10m to the regulatory pool without articulating exactly what that money is for.
“More broadly, the decision to, in effect, presuppose the outcome of the work programme – the specifics of which remain undefined – is something of a departure from previous market studies that the regulator has conducted.
“If the FCA believes that ARs drive significant consumer harm, it would be good to see how and the ways in which additional funding – predominantly from large, well supervised firms with huge investment in their own controls and systems – will go about addressing this.”
sonia.rach@ft.com
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