Biba blog: The FSA must account for its slice of cake

“Things are looking up, they’ve got cake,” I noted wryly to myself while attending a recent FSA trade association briefing about its proposed regulated fees and levies for 2012/13. Judging by the audience’s reluctance to try those sweet offerings, they were considered as indigestible as the information we were about to receive. We were not mistaken.

The FSA’s annual budget is set to increase by 10% to £1.2bn for 2012/13, consultation paper CP12/3 showed. Meanwhile, the proposed annual funding requirement (AFR) for 2012/13 is rising too, increasing to £578.4m from £500.5m in 2011/12, a gross increase of 15.6% in overall funding. 

The paper shows a hefty £32.5m to fund the costs of implementing the government’s reform of the UK’s regulatory framework. There is also the £22.4m for IS infrastructure investment, to enable the FSA to update its computing capability to ensure that it can support the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) going forward. Fingers crossed that the technology decisions taken now mean that we end up with compatible computer systems which are as far as possible future-proof. 

Then there is the Money Advisory Service (MAS) – the ‘free’ advice service created by the government to help consumers manage their money better. This year the AFR includes a new £40.5m charge for debt advice, which falls on the firms in those fee blocks that benefit from MAS providing this service. That’s £40.5m in addition to the £46.3m levy being raised against all firms to pay for the continuing money advice programme by MAS in 2012/13. What money advice programme I hear you ask? 

A crumb of comfort is that the minimum regulatory fee remains unchanged at £1,000 for the third year running. If you’re a general insurance broker, you should also be grateful for small mercies that our contribution to the AFR will fall by 3.1% to £24.2m. 

All this adds up to yet more unwelcome cost at a time when many industry sectors are coming under intense pressure. The FSA says that it recognises the difficult economic circumstances and that it is committed to keeping any essential cost increases to a minimum, but once again the industry is being asked to dig deep without any sign that the regulator’s performance is improving.  Is that fair?

I’m not advocating revolution. Financial services firms cannot stop paying their regulatory bills in protest, but we as an industry need to be more demanding. We need to ask more questions of our regulator and government. We must demand greater accountability from them as to how they spend our money. We need to receive better justification for any spend through improved cost benefit analysis and to see improved overall supervisory performance. 

Ultimately, the industry must feel that someone is listening and taking steps to curb spiralling regulatory costs. Unfortunately, the only political pressure being brought to bear on the FSA seems to be about repeating past errors rather than forcing regulatory costs downwards.  

Biba will be submitting its concerns to the FSA and government to ensure that general insurance intermediaries receive the fair and proportionate regulation they deserve. The FCA and the PRA must have the necessary checks and balances to prove that they are performing well and offering value for money to the firms funding them. After all, they can’t be allowed to have their cake and eat it too.

Vanessa Young, London Market Secretariat and Compliance Co-ordinator, Biba.