FCA has published its fees and levies proposals for 2020/2021. Covid-19 has affected FCA’s plans, and it is taking action to protect small and medium sized firms from the burden of regulatory fees. Comments are (at least currently) due by 19 May, with a view to final rules in July.
The headline figure in the proposals is a 2% increase in core budget in line with inflation, but FCA has managed to identify cost savings in several core activities, and can use the money saved to invest in its digital systems and development of its data strategy. It does, though, need to increase levies on relevant firms in respect of costs of Brexit-related activities.
Overall, the Annual Funding Requirement will increase by 5.2%, but minimum fees will be frozen for the smallest firms, which will mean that 71% of firms that only pay minimum fees will see no change. Medium sized and smaller firms will also 90 days to pay fees, meaning that 89% of firms will have until the end of the calendar year to pay.
This year, scope change costs will include the SMCR, CMCs and consumer credit, but FCA can return an over-recovery from MiFID 2. It proposes a £12m increase in its AFR allocation to consumer credit but can keep variable fee rates unchanged given current over-recovery (which has not impacted those firms that pay only minimum fees).
Specific proposals include:
- dividing the SMCR scope change costs between insurers and solo-regulated firms – as banks have already had these fees recovered, and the SMCR does not apply to sole traders;
- allocating the CMC charge to the CMC fee block;
- allocating the EU withdrawal costs across fee-blocks that include banks, insurers, fund managers and propriety traders;
- increasing the AFR allocation to the consumer credit fee block following successful allocation and recovery of consumer credit scope change costs;
- using income as a means of calculating periodic fees for MTFs and OTFs;
- increasing Part VII insurance business transfer application fees to £20,000 for life and £12,500 for non-life; and
- charging for prospectus approval applications
Overall, the largest movement will be seen by consumer credit firms who will pay an increase of 30.8% of AFR (for the reasons noted above) insurers, who will pay a 7.1% increase , with deposit takers, managing agents, Lloyd’s, portfolio managers and firms that deal as principal paying between 5-6% increase. Periodic fees will change, although many fee payers will see no, or only inflation-linked differences to the current fees, and others may see a reduction.
In terms of application fees, FCA notes these have remained unchanged for many years, which has had the effect of authorised firms effectively subsidising applications. To update application fees in line with inflation would move the fees for straightforward applications to £2,500, moderately complex to £8,500 and complex to £42,000. FCA plans to review these and will consult later in the year on its thoughts.
FCA will consult separately later in the year on proposals for crypto-asset business periodic fees in relation to business it supervises under the MLRs, while increasing the periodic fee for other MLR supervised businesses by 2% to $469.
Separately, FCA seeks views on whether it should undertake a communications and information campaign on areas where there is real risk of consumer harm to supplement ScamSmart.
Finally, FCA notes that FOS has significantly revised its funding arrangements and has asked FCA to raise a lower levy than envisaged, which will make the overall increase in levy less than expected, while the FSCS costs are significant, and a direct result of firm failure, which is of course likely to be impacted further by Covid-19. FCA also collects levies for the MaPS, devolved authorities in respect of debt advice and Treasury in respect of illegal money laundering prevention.
As usual, the consultation includes a draft instrument, showing the proposed changes for each fee block.