FSA hikes annual funding by almost 10%

The FSA's proposed annual funding requirement for 2010/11 has risen 9.9% to £454.7m.

But the regulator said that the introduction of a 'fairer and more transparent fee structure' means 60% of firms will actually pay less.

It added that the increased cost of intensive supervision will be levied on those firms whose size and impact require the most regulation.

The 9.9% increase, up from £413.8m in 2009/10, is reflective of the FSA’s intention to 'minimise any fee increases by concentrating on only essential areas of work'. These include:

• Continuing to deliver intensive and intrusive supervision;
• The delivery of the credible deterrence philosophy which is central to the FSA’s supervisory approach;
• The policy reform programme, driven by the Turner Review, which forms the FSA’s response to the financial crisis and covers critical issues such as reforms to liquidity and capital regimes; and
• Ensuring delivery of the wider policy agenda mandated by the European Union. This includes Solvency 2, the review of the capital adequacy regime for the European insurance industry, and the largest project undertaken by the FSA.

Outgoing FSA chief executive Hector Sants said: “The way the FSA regulates has changed radically, both in approach and intensity over the last three years.

“We recognise that any increase in the industry’s costs is unwelcome at a time when margins are under pressure in some segments of the industry. However, the overall increases are necessary to deliver our new intensive supervisory approach. The new fee structure will ensure that the costs are fairly distributed and the increased investment is paid for by those firms who will be subject to the increased scrutiny.”

In 2009/10, the FSA hired 280 new staff as part of its Supervisory Enhancement Programme. The full year costs of these staff will be represented for the first time in 2010/11 and equates to a 4% rise in total FSA costs, even if no other investments were made.

The FSA stated that the additional increase reflects primarily the investment necessary for Solvency 2, and a further increase in supervisory capability. "In the light of the experience of the last 12 months, this extra investment is clearly required to supervise the very largest firms," the FSA said.

Download the FSA's Consultation Paper, right.