The FSA issued its consultation paper (CP180) on the fees likely to be paid by mortgage firms and insurance intermediaries pursuant to FSA regulation of mortgage activities on 31 October 2004 and general insurance intermediation from 14 January 2005. Both these dates have been allocated the title "N(M&GI)". The FSA have given this paper a shorter consultation period and are asking for responses by 24 June 2003.
The consultation paper deals both with the application fees for Part IV permission and with the proposed periodic fees that all authorised firms pay. The paper also indicates that applications for both mortgage business and insurance intermediation will be streamlined to take account of the sheer number and variety of applications anticipated. Further details about the streamlined applications will be available in September 2003 and the FSA will begin to accept applications in early 2004.
The FSA hope that the estimate of fees will help those currently facing the choice of whether to continue with activities that will, following N(M&GI), be regulated by FSA.
The Application Fees
The current fee structure for both applications and periodic fees are based on fee-blocks and the FSA plan to add 3 further fee-blocks to the existing ones to reflect the new activities of mortgage lending and administration (A.2 fee-block), mortgage advising and arranging (A.18 fee-block) and general insurance intermediation (A.19 fee-block). The only exception to these new fee-blocks are existing FSA authorised general insurers who also conduct intermediary activities. Such insurers will remain in the A.3 fee-block and the level of fees in the A.3 fee-block is currently the subject of a separate consultation (CP168).
Current fee settings by the FSA make no distinction between the size of the firm seeking authorisation but because mortgage and insurance intermediation firms will already be established the FSA have been able to set an application fee based on the size of the firm. For mortgage lenders and administrators the fee will be based on gross mortgage advances made and administered in the year up to 31 December 2003. For mortgage intermediaries and general insurance intermediaries the fees will be based on the annual income made from the intermediation activities in the last financial year.
The FSA are keen to encourage early applications to avoid a rush of applications just before 31 October 2004 and 14 January 2005 deadline so they are offering a discount for applications lodged before 1 April 2004 (for mortgage business and long-term care) and before 1 June 2004 (for general insurance and pure protection products other than long term care). As a further encouragement, there will also be a lower fee for applications lodged electronically.
Reflecting these aims and the predicted level of applications means that the fees for lodging an application for Part IV permission are likely to be as shown in the attached table.
Those firms that are already authorised and simply wish to extend their Part IV permission to cover the new activities will pay 50 per cent of the proposed new fees. Those brokers who conduct both general insurance intermediation and mortgage intermediation activities will pay the fee based on the aggregate income earned from both activities. If a firm does fall within more than one fee-block they will be expected to pay the amount in the block which attracts the higher fee.
The application fees for EEA and Treaty firms are currently discounted and FSA intend to continue the discounting for EEA and Treaty firms who wish to set up a branch or offer mortgage or general insurance intermediation services in the UK.
Periodic fees for authorised firms are set depending on the size of the business. The FSA have already looked at mortgage lending and administration periodic fees and will base the size of a business on the number of mortgage contracts entered into in the year up to 31 December plus the number of mortgage contracts being administered by the firm multiplied by 0.5. For mortgage and general insurance intermediaries the fee-tariff will be based on the income a firm earns from the respective activities in a firm's latest financial year ending on or before 31 December 2003. The FSA have stated they intend to review the current fee-tariff for investment firms providing investment advice (which is currently based on the number of approved persons) with a view to changing it to an income based measure.
Due to the lack of reliable data, the FSA has not been able to estimate the periodic fee rates or amounts but they have indicated that the periodic fee for the smallest mortgage and general insurance intermediaries will be less than the minimum fee currently being paid by IFAs (£1,450 in 2002/3).
Financial Services Compensation Scheme (FSCS) and Financial Ombudsman Service (FOS)
For those firms that will be covered by the FSCS (currently likely to be mortgage and insurance intermediaries) there will be further fees to fund the FSCS. All firms will probably have to refer complaints to the FOS and this will mean further fees to fund the FOS. The FSA's intention is that the level of fees required to fund both FSCS and FOS will be known once the FSA complete the key elements of their fees regime for mortgage business and general insurance intermediation.
If you would like to find out more about how FSA's proposals will effect your business, please contact:
Paul Edmonds at [email protected] or on +44 (0)20 7367 2877
Nick Paul at [email protected] or on +44 (0)20 7367 2806
Mayoor Patel at [email protected] or on +44 (0)20 7367 2984
Jean Price at [email protected] or on +44 (0)20 7367 3353