RegulationNov 26 2020

FCA fee hike is a 'barrier to entry' for advice firms

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FCA fee hike is a 'barrier to entry' for advice firms

The Financial Conduct Authority's latest fee proposals could hinder entry into the advice market and increase financial pressure on smaller companies, commentators have warned.

Concerns have been raised following a consultation paper published by the regulator last week, which suggested increasing the application fees paid by new businesses seeking its authorisation, something which it last reviewed in 2014. 

The proposals could see fees for some of the most complex authorisation applications increase by almost 70 per cent. 

Keith Richards, chief executive of the Personal Finance Society, said there was not a lot of data to suggest the fee shake up would not harm market competition in any way.

In 2019 the total cost of authorisations at the City watchdog was £19m, but application fees only covered 33 per cent of this cost, with revenues of £6.2m. 

Mr Richards also warned the PFS was concerned the FCA had suggested introducing a £250 charge for Senior Manager and Certification Regime applications, saying it could "introduce burdens for smaller firms".

The new fee was also mooted alongside a charge for companies that submit to gain or extend its control over an authorised person, a process that is currently free of charge. 

The FCA said it was "reasonable to seek a contribution" from businesses that requested its services after they were authorised, in a bid to reduce the bill passed to existing fee-payers.

But the proposals have worried the industry, which has urged the regulator to consider the unintended consequences on the financial burden already faced by many advice companies.  

Mr Richards said: "The changes to the SMCR were prompted by the financial crisis, so there is a danger this will create a perception that regulatory change, prompted by issues in the banking sector, is resulting in costs and burdens for smaller firms, and reducing access to advice for consumers.

"However, a positive message to take away is that the FCA recognises how complex fee structures can be and have committed to simplify these for the market."

He added: "I think we all know someone who has been exasperated by the administrative burden of fees and so we can hope this eases things and that they will reflect on whether the complex consumer compensation funding system is the best way moving forward."

Tim Fassam, director of government relations and policy at trade body Pimfa, said: "At a time when firms are struggling to manage increased Financial Services Compensation Scheme costs and a challenging economic environment, the FCA must be careful to ensure any further increase in regulatory fees is well justified and transparent.”

Reforming regulatory costs has featured at the top of Pimfa's to-do list this year, with the trade body enshrining its campaign to lowering the FSCS levy and professional indemnity insurance costs in its recently updated manifesto. 

In last week's consultation paper, the FCA warned its proposals to increase application fees would still not recover the full cost of processing applications, and said the introduction of fees for changes in control and applications under the SMCR would go some way to plugging this deficit. 

Des FitzGerald, senior policy adviser at Pimfa, said the trade body appreciated there were operating costs incurred by the FCA to establish the new SMCR system. 

"However, this is a reminder that it is not unreasonable to expect the FCA should be transparent about the costs it incurs to carry out its operations, and that the regulator remains mindful of the need to provide value for money, along with operational effectiveness and efficiency," he added. 

"Pimfa is fully supportive of the FCA being properly resourced, but it is not unreasonable to ask that the regulator should demonstrate that it is spending its funds to the same degree of prudence it would expect of firms it regulates."  

The City watchdog said while some SMCR applications involved a "considerable amount of work", on average they took a few hours. Under the FCA's proposals, 8,000 SMCR applications would generate an approximate revenue of £2m. 

Gemma Harle, managing director of Quilter Financial Planning, said the new SMCR system had led to "understandable increases in costs", but warned there could be unintended consequences of the changes.

Ms Harle said: "This [fee increase] is a potential barrier for entry as a number of firms already have to spend money on an external party to assist with the submission of their application, adding to this cost may push them over the edge.

"We are also concerned that by charging for amendments the FCA may encourage the wrong behaviour as firms put off or do not submit the amends to avoid the costs."

Ms Harle said the industry was "fully accepting" the regulator needed to increase costs when appropriate.

But she warned the fact that fees were starting to create concerns about the future viability of small advice businesses – which make up a substantial part of the profession – should be causing "pause for thought".

Ms Harle added: "As we all continue to tackle the advice gap it is unfortunate that regulation may actually serve to increase it."

The FCA was invited to comment for this article. 

rachel.mortimer@ft.com

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