The Financial Services Authority (FSA), the market watchdog, has raised its budget for the coming year to just over half a billion pounds, an annual increase of more than 10 per cent.
The increase – which takes the budget to £500.5m – takes the regulator's annual funding requirement to its highest level in the FSA's history. But despite the rise for the financial year starting in April, City firms, which contribute to the FSA budget through a special levy, will end up paying less because of an increase in fines last year.
The FSA collected more than £79m in fines in the first nine months of 2010/11, up from £33m in the preceding year. As it returns the money earned from fines by way of discounts on the levy, the regulated firms will end up paying 2 per cent less than last year. Most firms authorised by the FSA will pay a minimum fee, the regulator said, adding that larger firms will bear most of the increase in the budget owing to the costs of supervising their activities.
"The completion of the FSA's changes to move to a more intensive approach to financial-services regulation has inevitably led to some increase in the authority's cost base," the regulator's chief executive, Hector Sants, said. "However, we are very mindful of minimising the additional cost to firms and are pleased that, net of enforcement fines, the actual amount we will be billing firms will be falling by 2 per cent."
The bigger budget will go towards readying the regulator ahead of its splitting in 2012 into the Prudential Regulatory Authority – which will be set up within the Bank of England and take on the regulator's prudential supervision powers – and a new Consumer Protection and Markets Authority.
The increased funding requirement also comes against the backdrop of new UK and international policies, particularly the reforms to the Basel Committee's banking norms.
"Longer term, the implementation of new UK and EU policies, along with the cost of managing the transition to two new authorities, will continue to put upward pressure on our cost base," Mr Sants said.
"However, in general, we would expect these increases to be borne by larger and more complex groups and would hope to minimise the impact on smaller firms," he added.