Peter Cardinali (Ref: CP10/5)

Finance Planning & Management Information - Fees Policy

Financial Services Authority

25 The North Colonnade

Canary Wharf

London

E14 5HS

12 March 2010

Dear Peter,

AFM Response to CP10/5, Regulatory fees and levies

  1. I am writing in response to this consultation paper, on behalf of the Association of Financial Mutuals. The objectives we seek from our response are to:
  • Comment on the proposals made in the consultation and the way that FSA has taken account of responses to the earlier CP09/26.
  1. The Association of Financial Mutuals (AFM) was established on 1 January 2010, as a result of a merger between the Association of Mutual Insurers and the Association of Friendly Societies. Financial Mutuals are member-owned organisations, and the nature of their ownership, and the consequently lower prices, higher returns or better service that typically result, make mutuals accessible and attractive to consumers.
  1. AFM currently has 56 members and represents mutual insurers and friendly societies in the UK. Between them, these organisations manage the savings, protection and healthcare needs of 19 million people, and have total funds under management of over £80 billion.
  1. Under the auspices of the Association of Friendly Societies, we responded in detail to CP09/26. We were very pleased to see that so many of our comments were taken on board, and in a constructive way, and we full appreciate the efforts taken by FSA to accommodate our concerns. We fully appreciate that the fee-setting timescales are very tight, and in our view FSA has made significant efforts to carefully consider the issues raised in consultation responses. It may well be that in future, starting the process of pre-consultation earlier will reduce the volume of exchanges that need to be addressed between the first and second stages of formal consultation.
  1. Our responses to some of the individual questions posed in the consultation are attached. At this stage we do not envisage making a further response for the secondary deadline provided within the consultation.
  1. We would be pleased to discuss further any of the items raised by our response.

Yours sincerely,

Martin Shaw

Chief Executive

Association of Financial Mutuals

Responses to selected questions

Q1: Do you have any comments on the proposed 2010/11 FSA fee rates for authorised firms and the premium applied to the rates in A1 (deposit acceptors fee-block)?

We sympathise with the position of the Building Societies on this, but also accept FSA’s argument that their responsibilities under FSMA require them to approach supervision of building societies and banks in the same fashion.

Q2: Do you agree with the proposal to treat smaller non-directive friendly societies as an exception allowing them to pay a reduced minimum fee and the unrecovered minimum regulatory costs be applied to A.4 (insurers – life) fee-block

We commented extensively on this in our response to CP09/26. We wholly support the proposal to treat non-Directive friendly societies as an exception, and recognise that this will lead to a small cost to be recovered across the remainder of fee-block A4. We consider this is a helpful recognition of the reach of these organisations, like credit unions, into people who would otherwise not have proper access to financial services. This is an area we would welcome further and wider engagement on with FSA policymakers.

Q5: Do you support our proposals for the new FEES 7 chapter?

Q6: Do you agree with our proposed £10 minimum levy for financial capability work/Consumer Finance Education Body?

We support the main principles for applying fees as set out in paragraph 13.15.

We question whether levying a minimum fee of £10 is cost effective- setting a very low fee is reasonable only as long as the cost of collection does not mean the money raised is insignificant. If it is, we would rather the smallest firms were not levied at all rather than make a token payment.

Q7:Do you agree with our proposed levies on periodic fees to recover the costs of financial capability work/Consumer Finance Education Body?

Q8: Do you agree that we should apply to CFEB the same discounts that we apply to FSA fees, apart from the discounts on financial penalties?

We agree with these proposals.

Q9: Do you agree with the changes we are proposing to the way the IMAP SPF will be charged in 2010/11?

We agree that FSA should continue to levy a SPF to cover its costs of administrating internal models for Solvency II.

The proposals indicate that a larger number of firms will be charged the IMAP SPF, and that this accords with the number of firms that have applied to develop their own internal model. As firms that wish to use an internal model have had to register this with FSA, we question why FSA has not investigated whether it would be more efficient to only levy the SPF against firms that have registered.

The consultation does not indicate whether this would be a larger or smaller population than the 125 general insurers and 75 life insurers proposed. As firms have already registered, and IMAP projects typically involve multi-million pound spends, we do not think a directly aligned levy would affect the decision on whether or not to use an internal model.

Q10: Do you have any comments on the proposed non-IMAP SPF for the period 2010/11?

We agree with the general principle of raising a levy across all firms that are in the scope of Solvency II. We would like to have seen a better explanation of how the £16 million cost is arrived at.

Also, unlike the IMAP SPF the text in the consultation does not indicate that any overpayment over the course of the project will be refunded to feepayers.

Q11: Do you agree that our proposed amendment to FEES4 Annex 2 Part 5 reflects the criteria set out in paragraph 9.23 of this CP and the requirements of the Solvency II Directive?

We agree that the change is appropriate.

Q18: Do you have any comments on the proposed 2010/11 FSCS management expenses levy limit figure?

We agree with the proposals.

Q19: Do you have any comments on the proposed 2010/11 FOS general levy rates?

We accept the proposals, though we would ask FSA and FOS to consider whether the point has now been reached whereby there is no need to raise a levy, but that all costs are collected by case fees.

When FOS was first established the split between levy and case fees was 50:50. At this time, there was genuine uncertainty about complaints volumes and a need for FOS to ensure that with a high degree of certainty its base costs would be met- an industry levy was therefore warranted. In 2010/11 the allocation of income is now 17:83, and whilst complaints volumes vary year by year there should be sufficient knowledge and maturity in the operations to manage the budget without raising a levy. We suggest this is explored for 2011/12.

AFM Response to CP10/51 of 4

March 2010