The excess income generated from firms' fees this year has been used to fund the Financial Services Authority's pension plan deficit.
In its Annual Report for 2005/06, the FSA says: "The income generated from fee payers is 1.2% more than net expenditure for the year and that excess has been applied to make an additional contribution to funding our pension plan deficit."
The deficit on the FSA’s final salary pension scheme has increased from £80.3m in 2004/05 to £91.3m in 2005/06, and the regulator claims this is largely as a result of a reduction in the corporate bond yield (£37m) and increases in assumptions concerning inflation (£16.4m) and life expectancy (£5.6m).
The FSA states: “The pension liabilities will not crystallise for many years and, notwithstanding the large deficit currently reported, the Board believes that the Fsa remains able to meet its liabilities as they fall due.”
But later on in the report the regulator adds: “The most significant financial management risk facing the FSA is that the benefits of the pension plan it offers to its final salary members will not be matched by the assets available to the plan.”
According to the report, the FSA’s statutory accounts show an increase of £12.6m in net liabilities over the year to £84.1m as at 31 March 2006 and, of that increase, £11m relates to the FSA’s pension plan.
In addition, the FSA’s employment costs have risen to £205.5m from the £196.4m budgeted, and it states £7.6m of this increase results from its decision to target retention payments in certain areas and to increase staff bonuses from a budgeted 7% to a final 12%.
Meanwhile, its net expenditure on ongoing regulatory activities (ORA) for the 2005/06 financial year is £267.4m, which is in-line with the budget of £267.4m set out in the FSA’s Business Plan.
The report also discusses the introduction of the Retail Mediation Activities Return (RMARs) in July 2005 and the FSA states that, as a result of processing small firms’ RMARs, it has identified around 8,000 potential rule breaches, with some firms’ returns containing more than one breach.
It has therefore taken further action through supervisory contact with firms in relation to over 3,000 rule breaches.
In addition, it has referred 269 small firms to its enforcement division for action on a variety of rule breaches since July 2005, some of which were identified from RMAR data.
The FSA has prevented 24 firms from conducting authorised activities and it has taken other action in the remaining cases.
In addition to introducing electronic reporting, the regulator claims it has made it easier for small firms to do business with the FSA as a result of the following measures:
- It has improved firms’ access to relevant information and support through roadshows, regional visits, sector-specific conferences, newsletters, and the launch of a dedicated website for small firms;
- It worked with the government to remove the costly audit requirements for small mortgage and general insurance firms;
- It has facilitated a scheme for firms to pay regulatory fees by instalments. Over 3,300 firms have taken up this option to pay their 2005/06 fees and levies, which totals over £20.7m. Almost half the firms paying by instalments are financial advisers, a quarter are mortgage arrangers, and a significant proportion are general insurance intermediaries;
- It introduced a minimum fee discount for firms undertaking small amounts of business in different fee blocks. Firms which pay the minimum fee in more than one fee block have benefited by a total of £3.9m and, of this, £2.4m has been to the advantage of mortgage and general insurance firms;
- It capped or increased by no more than 2% minimum fees; and
- It launched a fees calculator in February so firms can estimate and budget for their fees for 2006/07. The fees calculator received 6,153 online visitors during its first month.
Further data in the report reveals the number of authorised firms increased by 23,511 to 28,969, largely as a result of the extension of the FSA’s responsibilities to cover mortgage and general insurance business and the significant number of financial advisers who chose to leave networks and become directly authorised.
The number of approved persons fell from 165,587 to 164,821.
The FSA levied £17.43m in financial penalties during the year, of which £13,960,860 was paid by Citigroup Global Markets and £3,469,140 by 16 other individuals or companies.
Of the 70 targets the FSA set itself for 2005/06, 52 were delivered on schedule and, of the remaining 18, 10 were re-planned for delivery in 2006/07 while eight were re-planned but were still delivered in 2005/06.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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