Earlier this month, the Financial Conduct Authority published its fee proposal document and said its scope to include crypto firms has increased fees by £8mn.
The regulator said the fee will go towards the costs of developing IT systems and recruiting extra staff for the project.
Although the FCA is not responsible for regulating how crypto firms conduct their business with consumers, they have recently been brought under the regulator’s supervision under the money laundering and terrorist financing regulations.
However, some advisers have hit back on why they should cover the cost of any failure for a product they would not or cannot recommend.
Greg Power, an IFA at Lifetime Financial Planning, said: “As crypto assets were a non-regulated investment for many years, and as an adviser(s) we wouldn’t include it as a recommended investment, the regulator is now saying what the costs are, insinuating that the industry as a whole need to cover that cost.
“But surely that cost of regulation should in my opinion be covered by those providers who promote and the advisers who decide to include it as a recommendation to clients.”
Likewise, Tim Morris, IFA at Russell & Co said he spotted the link between crypto regulation and the regulatory fee increase.
“While I’m all for competition, it’s good to see 80 per cent of applications being rejected by the FCA. Cryptocurrency is still the wild west when it comes to issues such as cybercrime.
“Regulation should improve that and because Bitcoin has become mainstream and is already available within funds in the US & Europe, the UK would be left behind if it does not follow suit.”
Morris explained that people will continue to “invest” in crypto regardless and so it is important that it is done in a safer environment.
“After all, what is the point of a body that is meant to protect consumers if it constantly fails to do so,” Morris added.
“To be clear, I disagree that we should pick up the bill now or in future. The trouble is, if you go down the ‘polluter pays’ route from the start you would limit the number of advisers who will advise on it. That would mean the public will continue to invest themselves.
“For that reason and to keep financial advice relevant for current and future clients, I don’t see that we (advisers) have any choice but to absorb this cost.”
A parasitic operation
Yet while many advisers feel the wrath of the fee increase, not all of advisers feel the same.
Philip Martin, managing director at Unique Financial Planning, said he understood the concerns around the fees but said FCA fees are applied across the entire set of business lines.
“People with COB permissions who don’t advise on specialist higher risk investments like EIS or VCTs pay for those that do,” he said. “People at the riskier end of mortgage lending have their fees subsidised by those who do not operate in that part of the market.
“I suspect a carve-out would be impossible, even if it could be applied universally across all areas of business.”
Meanwhile, Derek Bradley, chief executive officer and founder at Panacea Adviser, described regulation as a “parasitic operation”.
“It needs to feed on something to sustain its growth,” he said. “In this case, that growth has seen a whole food opportunity in crypto to gorge on and that is why it is moving into this space.
“Who pays is a question that needs to be looked at in the same way as who is protected and from what.”
He added: “Unregulated products should not be advised upon by regulated firms in an ideal world. It is always the advice that causes the problem. On a personal front I have never understood why a regulated firm would want to swim in such dangerous water.”
Although Bradley raised concerns about the product itself, he too argued that if this is to be regulated, the cost should be shared.
“In fact if all regulatory costs were shared based on a percentage of turnover and nothing else that would be very fair,” he added.
“Today's innovation is tomorrow's FSCS call. By regulating the product and ideally determining how it should be used and with who, for what would make a lot of sense.”
An FCA spokesperson said: “We consulted fully on the changes to our fee structure. We are spreading the costs proportionately across all the relevant fee-blocks.”
sonia.rach@ft.com
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