Regulatory fees and levies: policy proposals for 2015/16
Comments from ACCA to the Financial Conduct Authority
ACCA is grateful for the opportunity to respond to the consultation on regulatory fees and levies for 2015/16. As a designated professional body (DPB) under Part XX of the Financial Services and Markets Act 2000, we have restricted our response to consideration of the proposals within chapter 9 of the consultation paper. Therefore, ACCA is primarily concerned with the fair allocation of costs between the DPBs, as this is most likely to result in the fair allocation of costs between regulated professionals and, in turn, between consumers. Our response is, therefore, mindful of the FCA’s objectives of consumer protection, market integrity and effective competition, as set out on page 5 of the consultation paper.
The past costs to the DPBs of the consumer credit group licences (issued by the Office of Fair Trading) are of limited relevance to this consultation, as we are concerned with the fair allocation of costs going forward. Nevertheless, where the methodology would result in DPBs being asked to contribute significantly increased (or reduced) fees to the FCA arising out of the inclusion of a limited range of credit-related activities within the FCA’s existing oversight, the proportionality of the proposals must be carefully considered.
As stated, we have focused our response on the fees to be levied on professional bodies. It is not possible to form a complete opinion on the reasonableness of the proposals without a clear understanding of the means by which the costs of the FCA are attributed to DPB activities (as opposed to directly authorised firms for example). Therefore, we have limited our response to considering the proposed allocation of fees levied and the basis of allocation - being core fees of £10,000 plus a further allocation based on the number of exempt professional firms covered by the DPBs.
On this basis, it appears that three DPBs would fall within the category of 'large', with one being classified as ‘medium’ and the remaining six being classified as ‘small’. At first sight, it appears disproportionate to charge an additional fixed fee of £1,200 to a DPB with just under 1,500 exempt firms but a fee of £6,000 to a DPB with just over 3,000 exempt firms. (A 100% increase in exempt firms might result in a 400% increase in additional fees.)
We also question the appropriateness of the methodology in the context of paragraph 9.2 of the consultation paper, which states that the ‘block fee’ is to cover the ‘costs in liaising with’ the DPB’s. The proposed methodology, in fact, appears to be founded on the benefits afforded to the members of the DPBs, ie the number of exempt professional firms falling within their authorisation.
Furthermore, it would appear reasonable (and in the interests of consumers) for some of the DPBs (including the accountancy bodies) to authorise all their member firms (except those that are ineligible), as this would avoid the risk that unauthorised firms would stray into the area of regulated consumer credit activities. All firms regulated by such a DPB would, therefore, be required to familiarise themselves with the requirements of Consumer Credit Act 1974 and the Consumer Credit sourcebook. In the absence of this, many firms would seek credit authorisation through their professional bodies as a protective measure only. In such cases, their authorisation would not have a significant impact on the workload of the FCA. The most relevant factor is that their DPB is overseen by the FCA, which will review that DPB's arrangements. Therefore, there will be relatively little difference between the various DPBs in terms of the demands placed upon the FCA’s resources.
The consultation paper makes clear in paragraph 9.4 that the overall costs of administering the DPB regime are not expected to increase significantly. Furthermore, paragraph 9.7 appears to suggest that the fact that some exempt professional firms will be engaged in both consumer credit work and other financial services does not add to the cost of FCA oversight. Given that there is an initial cost to the FCA of engaging with a DPB (paragraph 9.8 of the consultation paper), and given that there must be an incremental cost of engaging in respect of consumer credit activities, we would propose the following alternative model:
|Block fees for liaising with a DPB (£10,000 x 10)
|Additional fees for consumer credit (£7,000 x 7)
|Assuming the same proposed bandings for DPB categorisation:
|Small DPBs (£5,000 x 6)
|Medium DPBs (£7,000 x 1)
|Large DPBs (£9,500 x 3)
In conclusion, we question both the level of fees to be levied on the DPBs collectively, and also the wide variation in fees that would be allocated to the DPBs under the proposed methodology. We believe that an allocation of fees that is weighted too heavily towards the number of exempt professional firms covered by the DPBs would persuade DPBs to restrict the number of firms authorised, and this would not be in the public interest.
 This is demonstrated in Table 9.1 on page 47 of the consultation paper, which shows a diverse range of variances between the 2014/15 fees and the modelled fee based on authorise firms. One DPB (ACCA) would experience an increase in fees to the FCA of 94%, while another (the Law Society of England & Wales) would experience a decrease of 52%.