Currently, the FSA distributes surpluses to the fee-blocks paying the enforcement costs of the cases, then divides any remaining across all FSMA fee-blocks in proportion to their contributions to the FSA’s annual funding requirement (AFR).
The allocated AFR costs of enforcement for a fee-block are dependent on the enforcement activity expected to be undertaken for that fee-block.
An FSA internal review found the AFR-based method is potentially unfair as it means firms who are not the subject of any enforcement investigation, but who are in a fee-block that pays higher enforcement costs, do not benefit as much as firms in fee-blocks with lower enforcement costs.
To resolve the problem, the FSA wants to distribute any remaining amounts in proportion to its allocations of enforcement costs.
If the proposal had been applied in the current financial year, it would have raised the financial penalty distribution in several fee-blocks where high estimates of enforcement activity had pushed up the AFR, according to the FSA.
The plans are outlined in the FSA’s consultation paper CP11/21. The paper also proposes a change to the way the FSA calculates regulatory fees to replace the existing headcount of approved persons with a ‘regulated income’ measure from 2013/14.
