At a time when inflation is running at 0% and wages are increasing at less than 2% it takes a special type of organisation to propose increasing its costs by 8.5%, when many of its customers are struggling to make profits and rebuild their balance sheets. Many broker firms would like to increase their IT budgets and expand their staffing, but cannot given the limitations they face. This is only going to be made worse by the latest proposals from the FCA to increase their costs and fees by 8.5%.
The combined mortgage lender and broker fees blocks are proposed to total £34.3m, up from £31.7m last year, up from £24.0m in 2010 and astronomically higher than the £4.0m the Mortgage Code Compliance Board was charging at its demise just 11 years ago – and they had individual adviser registration. £34.3m is a huge amount of money to regulate the mortgage industry. In any normal company where staff costs account for half of all costs, this would equate to over 170 people working full-time on our sector.
Even if there was some sympathy that larger mortgage advice firms could find an extra 8.5% to fund the FCA, we are struggling when we see what is to happen to smaller firms. AMI has been successful in getting most activities exempted from the consumer credit regime, and this has been supported by Parliament. However the fees paper acknowledges that there might be a need to hold a simple licence to cover isolated activities. This will cost £100 but sits outside the current minimum fee allowance. In addition a new mortgage permission for consumer buy-to-let has been created costing £250 for the FCA plus £100 for FOS that will also sit outside the minimum fee structure. So the smallest firms will see their invoice grow by £534 from its modest £1000. This cannot be acceptable at a time when all are being asked to accept continued austerity. Even if the FCA concede that these new activities should sit inside the minimum fee block, this will increase by 8.4%.
Over many years AMI has been concerned as to whether there was cross-subsidisation in fees. To a degree this was removed when the PRA was created and the high cost of looking after some larger firms was removed. But with a combined budget of £739m now in comparison to the £543.5m in the last full FSA year (2012) it appears the only winners are those working in the regulator. We do know that much is being done to ensure that the FCA is “a great place to work”.
It makes one wonder what levels of challenge are coming from the Treasury and the FCA Board. It was clear that the Board were less than awake during the Insurer/Daily Telegraph debacle and it appears from the Treasury Select Committee report following the Davis enquiry that there are still serious questions to be answered. What is clear here is that there is no real challenge happening on costs, value and efficiency. This is a run-away train.
When we look at other regulators we see a very different story – it is hard to believe that the combined costs of the Civil Aviation Authority, OFCOM, OFGEM, OFWAT, the Office of the Rail Regulator and the Food Standards Agency are less than the FCA alone. These regulators are committed to restricting their budget growth in real terms and most are reducing their budgets.
Financial Services needs better leadership and focus from the FCA and their staff need to see a clearer focus on the core risks rather than this blanket approach. The industry cannot afford this level of review and outputs. AMI are challenging these proposals.