City must pick up the bill for FSA's regulatory crackdown

Watchdog says most firms will pay less – with burden falling on financial giants

By James Moore,Deputy Business Editor
Saturday 13 February 2010 01:00

The City watchdog yesterday told financial companies they face a 10 per cent increase in the fees they must pay to finance it as regulation of the City is stepped up.

However, the Financial Services Authority (FSA) said 60 per cent of firms would pay less because the rises would fall most heavily on the biggest and most risky institutions that will be subject to its new "intensive scrutiny".

The FSA will spend £454.7m supervising Britain's financial services industry in the 2010/11 financial year, up from £413.8m in 2009/10. The watchdog said the costs of 280 extra staff taken on during the past year to grapple with the continuing effects of the financial crisis would, on their own, push up overall fees by 4 per cent.

Smaller financial advisers will see their fees reduced, with many likely to pay a new minimum fee of £1,000 compared with £1,850 previously. There will be no additional minimum fees for firms trading across several business areas, reducing costs on, for example, advisers who sell life insurance, mortgages and general insurance. But standalone mortgage brokers and general insurance brokers will see minimum fees rising sharply. They had previously paid minimums of £745 and £450 respectively.

Companies requiring more intensive supervision will pay much more than that, with general insurers particularly hard hit – their fees will go up 45 per cent. Banks have already faced substantial rises but will have to pay yet more. Deposit-takers, for example, face a 12 per cent rise.

The fee packages are, however, headline numbers and do not include discounts as a result of the regulator's rapidly increasing income from fines. This will knock 7 per cent off financial companies' regulation costs for the next financial year. More heavy fines are expected, particularly among mortgage lenders, which the FSA is investigating. But financial companies have been told they face a crackdown so that miscreants will subsidise compliant firms through a sharp increase in penalties.

"We recognise any increase in the industry's costs is unwelcome at a time when margins are under pressure," said Hector Sants, the FSA's chief executive, who revealed this week that he will stand down in the summer. "However, the overall increases are necessary to deliver our new intensive supervisory approach."

Simon Morris, a partner at City law firm Cameron McKenna, said: "The FSA is showing it means business and is acquiring both budget and manpower to continue its aggressive approach to enforcement. All firms should heed this latest warning and redouble their efforts to ensure their systems and controls are adequate."

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