The Financial Ombudsman Service (FOS) also believes it will cost between £1.5m – £2.5m in 2019/20 to perform its regulatory duties over the sector.
CMCs will come under the FCA’s remit on 1 April 2019 with firms being able to register for temporary permission from 1 January 2019.
£7.1m upfront
In its CP18-23 consultation paper the FCA highlighted that it will collect £7.1m of its setup costs, around 42% of the total, through periodic fees in the first year of CMC regulation – 2019/20.
It noted this was because the sector was undergoing considerable change and this uncertainty might limits the FCA’s ability to defer recovery of costs as firms may exit the market.
Notably this includes the deadline of 29 August 2019 for the submission of claims relating to PPI.
“There is a strong risk that recovery of the project costs might fall disproportionately heavily on those firms that successfully apply for authorisation and become fee payers from 2020/21 onwards,” the FCA said.
“It would be unfair for firms which take advantage of the regulatory gateway, but which leave within the first year, to pass their share of the project costs to those firms which continue to be authorised by us.
“For this reason, we have decided to collect a substantial proportion of our project costs in the first year.”
Application and periodic fee
The FCA is proposing that CMCs will form one whole industry block and be required to pay their full periodic fee for 2019/20 after they register for temporary permission.
Application fees will be collected on a tiered basis. Firms with a turnover of up to £1m will pay £1,200, firms with a turnover above £1m will pay £10,000.
Any authorised firms which apply to become CMCs will benefit from the standard variation of permission discount.
For annual regulation, the FCA is initially proposing a minimum periodic fee of £1,000 on turnover of up to £100,000.
CMCs with turnover above that threshold will pay £1,000 plus a variable rate of £13 per £1,000 of turnover above £100,000.
FOS fee
The consultation also proposes the fee structure for CMCs to be regulated by the FOS.
Based on currently available information, the FOS estimated that it will need to raise £1.5m to £2.5m by general levy for 2019/20 in relation to CMC activities.
This will be divided between CMCs in the new CMC industry block, relative to their income with an estimation of £2.70 to £4.50 per £1,000 of annual income, subject to a minimum fee of £50. FOS will confirm the final fee later this year.
The consultation is open until 22 October.
