FCA & PRA - Regulated fees and levies: rates proposals 2013/14
The response below is a reproduction of the response submitted to the Financial Conduct Authority (FCA) since there is significant overlap between this and the parallel response to the Prudential Regulation Authority (PRA). The formal response documents for both are available to download on the right.
We appreciate the opportunity to respond to this consultation. The Association of British Credit Unions Limited (ABCUL) is the main trade association for credit unions in England, Scotland and Wales representing around 65% of British credit unions who in turn serve around 80% of credit union members.
Credit unions are not-for-profit, financial co-operatives owned and controlled by their members and operated for their sole benefit. They offer inclusive financial services to the whole of their communities including safe savings and affordable loans. An increasing number of credit unions also offer more sophisticated products such as current accounts, ISAs and mortgages.
At 30 September 2012, credit unions in Great Britain were providing financial services to 883,670 adult members and held more than £795 million in deposits with more than £605 million out on loan to members. An additional 122,379 young people were saving with credit unions.
Credit unions’ work to provide inclusive financial services has been valued by successive Governments. Credit unions’ participation in the Growth Fund from 2006 – 2011 saw over 400,000 affordable loans made valuing £175 million and saving consumers between £119 million and £135 million. The DWP recently announced that it has awarded a contract for the delivery of its Credit Union Expansion Project, to a consortium of credit unions led by ABCUL. The Project will invest up to £38 million in the sector.
Q1. Do you have any comments on the proposed FCA 2013/14 minimum fees and periodic fee rates for authorised firms?
Firstly, we are grateful for the continued proportionate treatment of the smallest credit unions through the retention of the special minimum fee regime they enjoy. This is in line with the statutory requirement to regulate firms proportionately as required by the Financial Services Act 2012 as it amends and adds to the Financial Services and Markets Act 2000. Credit unions often operate in a market providing a socially-motivated affordable lending and deposit-taking service which has been consistently encouraged by successive Governments. Given the tight financial margins necessitated by such business, especially in light of the relatively early stage in the British credit union sector’s development, we strongly support the continued proportionate fee regime for the smallest credit unions.
Secondly, we also strongly support the continued fee premium applied to the most systemically important firms in the deposit-taking class. Given the extra regulatory scrutiny which has been afforded to the largest, systemically-important deposit-takers since the financial crisis in 2008 we feel that it is entirely appropriate that this additional attention is reflected in the fees which these entities are required to pay to the regulator. This, of course, also has the effect of reducing the burden upon smaller firms whose survival is not required for the stability of the financial system and, therefore, who have not undergone any extra scrutiny requiring extra regulatory resource since the crisis.
However, thirdly, while we are broadly satisfied with the retention of the FSA’s overall distributive settlement for regulatory fees under the new regime, we have significant concerns about the 15% inflation of the overall fee burden upon regulated firms and the even greater (20%) rise for the deposit-taking class. We appreciate that the proposed fee burden reflects the extra resource requirements necessitated by the new regulatory structure and, in the case of deposit-takers, the division of responsibilities between PRA and FCA, yet we urge caution in imposing increased regulatory fee burdens upon firms. It is important that a balance is struck between the overall fee burden for dual-regulated firms across both PRA and FCA and the more resource-intensive regulatory philosophy and structure created by the recent reforms. In the case of the credit union sector, as has discussed above in relation to minimum fees, our members often face financial pressures arising from their socially-motivated activity and unique status as lenders operating within an interest rate ceiling which commercially-motivated firms do not face.
The Financial Services Act 2012 requires both PRA and FCA to take into account the overall fee burden upon dual-regulated firms when setting fee levels and we think that it is important that this requirement is applied rigorously, especially in relation to smaller firms such as credit unions, if the new regulatory regime is not to undermine the stability of at least some firms.
Q2. Do you have any comments on the proposed FCA 2013/14 minimum fees and periodic fee rates for fee-payers other than authorised firms?
Q3. Do you have any comments on the proposed FCA financial penalty scheme?
We have no substantive comments. The proposed scheme appears reasonable. It is disappointing that the full financial penalty revenue can no longer be retained by the regulator to off-set regulatory fees but we understand that this is outside of FCA’s remit.
Q4. Do you have any comments on the proposed method of calculating the tariff rates for firms in each fee block towards the CJ levy and our proposals for how the overall CJ levy should be apportioned?
We are broadly satisfied with the proposed distribution of the CJ levy. Credit unions generally have very few complaints which are taken to the FOS given their socially-motivated business.
Q5. Do you have any comments on the proposed 2013/14 Money Advice Service levy rates for money advice?
We are pleased that the consultation revises the proposed cost allocation framework by website usage suggested in CP 13/2. We had some significant misgivings about the rationale for the proposal and so we are satisfied that the revised position which incorporates both the existing framework and the web-based allocation framework is an improvement.
We also strongly support the reduced MAS budget for the year of £2.5 million. In the context of rising fee and levy burdens, any reduction is welcome.
Q6. Do you have any comments on the proposed 2013/14 Money Advice Service levy rates for debt advice?
We support the freeze in MAS debt advice budget for the coming year and the retention of the cost allocation framework of and 85/15 split between secured and unsecured lenders. We would reiterate our call, as voiced in previous consultations, though that when consumer credit regulation is brought under the auspices of the FCA in 2014, the consumer credit industry should be expected to contribute to the costs of MAS debt advice co-ordination.
As has received significant coverage in the press of late, unsecured consumer credit – particularly high-cost and pay day – lenders play a central role in causing and exacerbating problem debt and so we would suggest that these lenders should pay a fair contribution to the costs of MAS debt advice work.
ABCUL’s position in relation to the proposals can be summarised as follows. While we support and are grateful for the proposed continuation of reduced minimum fees for the smallest credit unions and the fee premium for the largest deposit-taking firms, we are concerned that the implementation of the new regulatory structure has led to a 20% increase in fees for the deposit-taking class. We appreciate that the new structure is more resource-intensive than the FSA regime that preceded it, however, we feel that a balance must be struck between regulatory resource needs and the potential for rising fees to undermine firms’ business models and annual fee increases of this magnitude would not represent such a balance.
In relation to fees for the subsidiary bodies, FOS and MAS, we are broadly satisfied with the proposals. We would like to reiterate our call for consumer credit lenders to be required to make a contribution to this once FCA takes on consumer credit regulation in 2014.
ABCUL – May 2013