AMI has spent a considerable amount of time consulting members and discussing the application fee bands with the Financial Services Association (FSA). We won the concession of a new, lower band, between £1m and £3m, so reducing the cost to those in that band from £8,750 to £4,000. For those firms below £1m in annual income, the cost of early application is now £500. It would have been better if the FSA has introduced another band at around £10m. However, I take comfort from the fact that the precedent has been established and that the FSA will listen to reasoned argument around fees.
The application fee consultation was only a ‘warm up’ for the much more important consultation on periodic, or annual, fees. We have started this already and want to see these fees kept down and in line with the work to be done. After all, the FSA has said that mortgages are less risky than other areas they currently regulate.
No one likes paying fees, especially when all they do is allow you to carry on the same business. However, I was pleasantly surprised by the original fee proposals set out in CP180 and am further encouraged that these have not been revised upward and that the FSA has added an extra band for firms with less than £3m turnover. For the large majority of small firms, I do not think that £500 (for early and online applications) is unreasonable. I also do not think this cost will be a deciding factor in firms going direct to the FSA. For most, it is not simply a question of cost, it is what they do not know and cannot quantify that will influence their decision of becoming an appointed representative (AR). Actually writing out a cheque to the FSA is very easy compared to not properly knowing what else direct authorisation involves.
It comes as no great surprise to me that the FSA has reduced its charging bands for smaller brokers, from £8,000 to £4,000 in the case of people submitting less than £1m of business. After all, the previous levels were simply too high to justify. However, it is also interesting that the FSA seems to be concerned about the number of brokers that are considering becoming appointed representatives, and hence circumvent their regulation.
Although recent statistics indicate that twice as many people would like to become multi-tie as want to be AR, there is little doubt that the cost of regulation is discouraging them. The FSA is aware that this is driving people to becoming ARs, despite their preferences. Whether it has done enough to stop this potential exodus is another matter though.
The FSA has taken on board the responses from various sources regarding the application fee bands and has adjusted them accordingly. The industry response was that the fee for smaller brokers was about right but the fee for brokers writing over £1m of business was too high. This change demonstrates its willingness to listen and to encourage medium-sized firms to go directly authorised, but there is still a large jump in fee between those writing £900,000 of business and those writing just over £1m.
However, paying the fee and completing the application form is only part of the application process and many brokers are still unaware of all the information and procedures that they must demonstrate are in place to gain authorisation. It is not that these are particularly onerous and for some brokers it will be a mere formality, but others may need to ensure that they have all the appropriate procedures in place. As always this takes time and therefore it is imperative that brokers do not wait until the last minute as they may run out of time and risk not being able to trade from October 2004.
Premier Mortgage Services
I believe the FSA has gone some way to addressing the problems that were facing intermediaries at the lower end of the scale. For many advisers though, if they are in a one to five man band then there is still a large income differential between £0 to £1m. I just think that it could have introduced a much lower band for those with a net income of £0 to £500,000 – after all, the FSA is now encouraging smaller brokers to become directly authorised.
The FSA has clearly been listening to feedback and we welcome the extra banding for smaller firms with turnovers of £1m to £3m – which is more reasonable than the original wide band from £1m to £25m. Together with the simple authorisation process, this should certainly encourage smaller firms to seriously consider direct authorisation.
However, it is still a big jump from £3m to £25m, so perhaps intermediate bandings should be considered for the future. The proposed annual registration fees will help firms to plan ahead. However, the £750 minimum level is much higher than the MCCB’s, and we would encourage the FSA to think again and set a lower level for sole traders. On the plus side, this extra income flowing into the regulatory system will hopefully see substantial additional consumer benefits as the quality and quantity of regulatory supervision increases.
It is certainly a welcome move on behalf of the FSA and it is encouraging to note that on this occasion it has listened to the concerns raised during the consultation. It is a better structured fee scale than the original, although the £3m to £25m banding remains quite wide. The decision to offer a discount for early registration will help to keep the focus on the need to register as early as possible and avoid the potential turmoil that can be caused by last minute entries. The good news is that we now have clarity on fees; the FSA now needs to make sure that the registration process itself is user-friendly and efficient.