Comment: Big ideas with a big price


The cost of regulation continues to rise, with sensible and responsible companies always having to bear an increasing cost to the regulatory family.

By law, we must financially support the Financial Conduct Authority, the Financial Ombudsman Service (FOS), the Financial Services Compensation Scheme and the Money & Pensions Service; in addition, we have other groups all adding their views on “improved” standards, all wanting to charge companies money to improve them.

It will be essential to pay attention to costs and liability

With the efforts of the Equity Release Council, the Chartered Insurance Institute and the Investing and Saving Alliance, combined with others such as the Financial Services Culture Board, the Lending Standards Board and the Business Banking Resolution Service, it appears that There’s no end to organizations that have a view on how we should treat customers.

However, it’s the FCA’s annual bill that tends to get people’s minds the most. This year, a number of big changes are proposed for consulting firms. We await the final rules with interest, having strongly opposed some of the changes. For mortgage and protection companies, the percentage increase will depend on your size, complaint level and structure.

I remain exasperated by the assumption that advisors can simply afford to pay more.

load sharing

First, it seems that cryptocurrency businesses cannot afford the cost of new regulation. This will therefore be shared between those who have a responsibility for “money laundering”. Under the proposed definition, this includes mortgage advisory firms. It’s not a huge amount, but significant enough – to be followed next year with the same argument for funeral plan providers.

The scale of the challenge facing the industry is enormous. Consumption duty and fair value involve pressing the reset button

Second, the minimum fee for small businesses will increase from £1,151 to £1,750 (52% increase) in 2022 and to £2,200 (26%) in 2023. This is offset for businesses that also hold a license to consumer credit without income, with this charge (previously £750) being included in a new combined minimum charge. So a little respite for mortgage advice firms.

If you are a Network Director, the fee you are charged for each appointed representative is to increase from £250 to £286 (15% increase), with the Introducer Appointed Representative fee increasing from £75 to £86. Additionally, the submission fee for any long Form A is introduced at £250 each. A tax on this economic model.

The findings of the recent consumer panel report on equity release are not pleasant to read

The fact that FCA sees the need to increase its budget by 7.3%, when it had previously pledged to control cost growth at 2%, does not inspire confidence. The FCA board has approved the mere pass-through of rising national insurance costs we all face to consultancies, with no evidence of prioritization, which is concerning.

Mortgage advisory firms are only seeing a 5.4% increase in their base fees, but this will be supplemented by other costs.

Not in the same bill, changes to FOS will affect many such businesses. Cutting 25 free cases to just three means more businesses will have to pay £750 for each case considered. For some, this could significantly increase their annual costs, often to defend a vexatious complaint.

Compensation scheme

Finally, there is the most important variable, the compensation plan element. The issues here are still primarily driven by the investment advisory and retirement industries. However, we hope that the bills will be the same in 2022/23, but it is inevitable that we will see larger bills thereafter, unless we secure a new funding agreement.

That said, the FCA presented its three-year strategy and business plan for 2022/23. It’s definitely more sensible reading than before. The volumes of complaints and claims are expected to decrease as the regulator eliminates bad behavior.

This should be seen as a positive and is much clearer than the somewhat vague series of “mission statements” of the Andrew Bailey era.

The fact that the FCA sees the need to increase its budget by 7.3%, when it had previously committed to controlling its cost growth at 2%, does not inspire confidence

Finally, the scale of the challenge facing the industry is enormous. Consumption duty and fair value involve pressing the reset button. They will add more bureaucracy and cost. Also, the findings of the recent consumer panel report on equity release are not pleasant to read.

Yes, it’s a sample skewed towards the vulnerable, but we don’t look good and there hasn’t been enough learning from the work of FCA two years ago.

Regulatory costs are rising in what will be a difficult time for consumers and businesses. It will be essential to pay attention to costs and liability.

Robert Sinclair is the Managing Director of Ami


This article appeared in the June edition of MS.

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