In its response to the FSA’s fees consultation published in February, AIFA has proposed a radical overhaul of FSA funding.
Based on the findings of economic group RGL Forensics, AIFA is proposing both a long-term solution for the allocation of the regulator’s costs each year and a “stop-gap” suggestion it says is “achievable” before the fee levels are set for 2010/11.
Under the second, short-term proposal, with the cost allocation based on firms’ profitability, the bill for intermediary firms would be cut immediately from £70m to between £22.7m and £24.6m this year.
Under its longer-term solution, AIFA proposes a “comprehensive overhaul” of the entire fee block regime to bring about a “much fairer system” for all. However, it adds this option represents a significant amount of work and may not be possible for the fees due in 2010/11.
AIFA says the current fee structure dates back to 2001 when the industry was “fundamentally” different.
The cost allocation model in use today can only allocate 50% of costs directly to the FSA’s 26 fee blocks, AIFA says.
But it argues it is not clear what the remaining 50% relates to and what amount, if any, should be allocated to the IFA sector’s fee blocks given their historic low market risk.
It says the current model arbitrarily allocates these costs pro rata to direct costs with the effect that IFAs’ fees represent double the amount of costs directly related to them.
“This must now be recognised as a historic anomaly which, in the interests of natural justice and sound principles of good regulation, must be corrected,” it says.
Chris Cummings, AIFA director general, adds: “The intermediary profession was not the cause of the banking crisis.
“Therefore it should not be forced to pay for greater scrutiny of those sectors that pose a systemic risk to the economy. FSA needs to radically overhaul the way it allocates its costs.”
The consultation period for the FSA’s fees and levies proposals closed on 12 April.
Subject to FSA Board approval next month, the FSA plans to publish its finalised policy and fees for 2010/11 in June.
