UK’s FCA Wastes No Time in Setting Priorities; 15% Budget Increase

April 10, 2013

The UK’s newly established Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), which replaced the FSA on April first, have lost no time in ordering their priorities for 2013/14.

The FCA announced that its overall Annual Funding Requirement (AFR) for the period is £432.1 million [$662 million] and “the combined FCA/PRA AFR for 2013/14, totals £646.3 million [$990 million], representing a 15 percent increase over the 2012/13 FSA AFR of £559.8 million [$858 million].”

The FCA noted that 42 percent of its “authorized firms need only pay the minimum fee and for the fourth year running the gross minimum fee for firms will remain unchanged at £1,000 [$1,532]. Medium sized firms will see a proportionate increase reflecting the type of business they conduct. This increase will be borne mainly by larger firms, reflecting the resources applied to the intensive conduct and prudential supervision of high impact firms.”

The bulletin listed the following “key areas,” that the regulators will focus on:
• A renewed focus on good outcomes for consumers. This will include helping to ensure that firms’ strategies are aligned with producing appropriate outcomes for consumers − for example, through the work on product governance and incentive structures in firms;
• A continued focus on tackling market abuse, by taking strong enforcement action to deter future misconduct. Focusing on wholesale conduct will be critical for the FCA, as will the new approach to the supervision of trading platforms;
• Ensuring a competitive financial services industry. A significant change for the FCA, this will involve building a new Competition Department to embed competition analysis across the organization, which will take action as appropriate;
• Continuing to address ongoing misconduct, such as LIBOR, Payment Protection Insurance and interest rate swaps; and
• Carrying forward major policy initiatives such as the Mortgage Market Review, the changes to retail investment advice and extensive engagement with Europe on important Directives under consideration.

The FCA’s Chief Executive Martin Wheatley said: “Our first year as a new regulator will be an exciting and challenging time but one for which we are well prepared. We are introducing new approaches to the way we do much of our work, becoming much more proactive and consumer focused. Much of the increase in AFR is the result of the additional resources needed to ensure the FCA delivers on its new objectives, as well as the practical costs of implementing the new regulatory structure.

“The increases will be borne mainly by larger and more complex groups with medium sized firms seeing a proportionate increase. We have, however, minimized the impact on smaller firms by keeping the minimum fee at £1,000 for the third year running. The FCA recognizes the difficult economic circumstances for many firms and is committed to keeping any essential cost increases to a minimum.”

The bulletin also noted that the “enforcement fines the FSA imposed during the previous year used to be returned to the industry by way of discounts to their fees in the following year. The amounts of financial penalties collected by the FSA in 2012/13 were £381.8 million [$585 million]. Following changes made by HM Treasury these financial penalties, net of certain enforcement costs (£40.6 million [$62.1 million]), will now be paid to the Exchequer in April 2013.”

Source: Financial Conduct Authority

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