Out-Law News 2 min. read
06 Feb 2012, 12:02 pm
Otto Thoresen, director general of the Association of British Insurers (ABI) said that although insurers would do their best to absorb the regulator's gross increase of 15.6% of overall funding, some would "inevitably be passed on to the small companies and private individual who are customers of the insurance industry at a time when they can least afford it".
As well as contributing towards the FSA's estimated £578.4 million annual funding requirement (AFR), insurance firms will also be subject to 'special project fees' intended to cover the implementation costs of Solvency II, the new European risk management and liquidity regime due to come into force from 2014. The regulator estimated it would need to recover a further £25.9m from these firms.
"This massive increase in regulatory fees comes in a year when insurers already face increased costs associated with implementing the Retail Distribution Review, Solvency II, changes to gender risk pricing and auto-enrolment. We knew there would be a cost involved in moving to twin peaks regulation but, in this difficult financial environment, all organisations need to be focussed on controlling their costs," Thoresen said.
The AFR covers the FSA's own costs as well as the fees it charges on behalf of the Financial Ombudsman Service (FOS), Financial Services Compensation Scheme (FSCS) and Money Advice Service (MAS).
This year the FSA will be reorganised internally into a 'twin peaks' model, which is intended to reflect the structure of the new programme of financial services regulation reform due to come into force from 2013.
The regulator's responsibilities are due to be divided between a new Prudential Regulation Authority (PRA) and a new Financial Conduct Authority (FCA). Under the new regime, all banks, building societies and credit unions, investment banks and insurers will be prudentially regulated by the PRA, while conduct regulation will be the preserve of the Financial Conduct Authority (FCA).
The Government's reform of financial services regulation played a "significant part" of the regulator's increased funding requirements, it said in a statement. Restructuring costs, estimated at £32.5m, amounted to 28% of the increase in its AFR, it said, while modernising its IT infrastructure in preparation for the transition to the FCA was likely to cost a further £22.4m.
The regulator said that in putting together its funding proposals it had kept cost increases to a minimum by "capping staff levels for the second year in a row and restricting core operating costs" to a level broadly in line with inflation.
"The increase in fees will be borne mainly by larger firms, reflecting the resources applied to intensive supervision of high impact firms. Medium sized firms will see a proportionate increase reflecting the type of business they conduct," it said.
It added that 24% of FSA authorised firms would only need to pay its minimum fee, which remained at £1,000 for the third year running.
Hector Sants, chief executive of the FSA, said the year to April 2013 would be "challenging" one for the regulator.
"We will be moving to a twin peak model internally whilst at the same time continuing to focus on our supervisory role in a very difficult economic environment. Much of the increase in AFR is the result of the additional resources needed to implement the new regulatory structure but these costs for the restructuring are in line with government forecasts," he said.
"The FSA will continue to deliver intensive and intrusive supervision and develop the key policy initiatives but we are not planning any new discretionary initiatives. The principal initiatives are progressing the domestic consumer protection strategy, implementing a number of key EU directives and influencing the continuing international regulatory reform agenda."
The regulator will publish its annual business plan in March, it said.