FSA fees inaccurate

Nia Williams

February 1, 2010

The Association of Independent Financial Advisers (AIFA) published its response to the Financial Services Authority’s (FSA) policy proposals for regulatory fees and levies (CP09/26), asking the FSA to review the total costs of regulation and the proportion paid by the intermediary profession.

Analysis shows that deposit takers accounted for 28.5% of FSA’s 2009/10 annual funding requirement while the intermediary sector, including those represented by AIFA and the Association of Mortgage Intermediaries account for almost one fifth (19.2%). The manufacturing community – life companies and fund managers – are also paying disproportionately low fees (12.2% and 7.8% respectively) compared to intermediaries.

Chris Cummings, director general, AIFA, said: “An opportunity has been lost to examine the true cost of regulating the financial services community. The investment and mortgage intermediary sectors now generate almost one-fifth of FSA’s fees income. These firms do not present systemic risk. By comparison, the banks are paying remarkably little in fees according to FSA’s statistics and not enough to cover the cost of the degree of regulation that is warranted by the systemic risk they present.

“While we support the reduced fees for small IFA firms the increased costs for larger firms cannot be justified. The proposal that fees are determined by size of firm is overly simplistic. Instead, fees must take account of the sector the firm operates in, and the overall systemic risk that sector poses to the economy. The use of regulatory dividends and risk-profiling of firms must be developed.”

Chris added: “We would also encourage FSA to use the tools at its disposal to reward firms that invest in their business and its people. For example, regulatory dividends could be linked to aspects of the Retail Distribution Review such as altering FSA fees for advisers who are at or beyond QCF level 4. This would mitigate the costs of regulatory change for firms that have made the substantial effort to invest in their staff and would encourage firms to progress through ‘milestones’ linked to dividends.”

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