BRITAIN’S largest banks were made to pay the price for their misdemeanours yesterday with a sharp rise in the cost of funding the new regulatory regime.
While the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) said the smallest firms will see their minimum fee frozen at £1,000, costs are set to rise by a fifth for deposit-taking banks and general insurers.
The nine largest “dual-regulated” groups, including the likes of Barclays, HSBC, Lloyds and Royal Bank of Scotland, will see their overall fees rise 24 per cent, which the FCA said reflects the higher costs of an “increased focus on the risk assessment of what are systemically important firms”.
The FCA and PRA, which took responsibility for regulation on 1 April, said their combined running costs for 2013-14 would be £646.3 million, up 15 per cent on last year’s bill for the defunct Financial Services Authority (FSA).
Maggie Craig, head of conduct regulation at the Association of British Insurers, said: “While we recognise the new regulators need to be sufficiently resourced, there should be clearer success measures to ensure their work is effective against new objectives and that fees represent value for money.”
FCA chief executive Martin Wheatley said the watchdog recognised that many firms face difficult economic conditions and it was committed to keeping “essential” increases to a minimum.
He added: “Much of the increase in our annual funding requirement 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.”
The FCA will supervise the conduct of staff at 26,000 financial firms, while the PRA will oversee 1,700 banks, building societies, insurers and investment firms to make sure they hold enough capital.
Last year, the FSA hit firms with £381.8m in fines after a raft of scandals, including mis-selling and the Libor-rigging affair.
On top of the fees to the FCA and the PRA, firms will also see a 30 per cent jump in their annual contributions to the Financial Ombudsman Service (FOS) to £23m, while large increases are expected to the levies paid to the Financial Services Compensation Scheme (FSCS), which aims to help customers left out of pocket when financial companies go bust.
Wealth manager Charles Stanley is among the firms to have seen a steep rise in its FSCS bill over recent years. In 2009-10, the company paid £686,000 for what chairman Sir David Howard described as compensation for clients of “failed investment firms in wholly unrelated areas of business”.
The levy jumped to £2.6m the following year, before falling to £1.6m in 2011-12, but the bill is expected to have risen above £2m again this year, and a spokesman for Charles Stanley told The Scotsman yesterday that “the misdemeanours of the few are having a huge effect on the City as a wider entity”.
Financial advisers face a 13 per cent increase in fees, which Chris Hannant, policy director at the Association of Professional Financial Advisers, attacked as “unsustainable”.
Hannant said the implementation at the start of this year of the retail distribution review (RDR), which banned commission payments to financial advisers, had caused many advisers to leave the industry and the FCA must take this into account when it determines its fees.
He added: “Costs for the new regulator continue to escalate, as they did with the FSA in recent years, at a time that other public bodies are being asked to cut back their budgets.
“It is unsustainable to expect fewer advisers to carry this extra burden.”