Moves by the regulator to introduce a flat fee structure for appointed representative firms (AR) are “flawed” and “without justification”, according to PIMFA.
The trade body said it was very disappointed with the proposals outlined by the Financial Conduct Authority (FCA) in its fees and levies consultation, which opened on 20 April and closed on 25 May.
It said the move would result in AR firms contributing an extra £10m overall to the regulatory pool for no ascertainable reason. PIMFA said the flat fee structure was without justification and there was no evidence of the issues it was seeking to address.
It added the planned changes had been subject to an "extremely brief" consultation period and presented as inevitable to firms.
PIMFA said the proposals directly penalise firms that are, in theory, best placed to have effective supervisory models of their ARs.
It explained larger firms who have an extensive network of ARs (for example, the likes of St James's Place and Quilter) tend to have invested a significant amount of money in their systems and controls and are, by "virtue of their size and scale, subject to enhanced supervisory oversight".
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The organisation said the FCA's plan was "flawed".
Senior policy adviser Simon Harrington added: "It is extremely disappointing that the FCA has taken these steps to ask firms to contribute an additional £10m to the regulatory pool without articulating exactly what that money is for.
"More broadly, the decision to, in effect, presuppose the outcome of the work programme - the specifics of which remain undefined - is something of a departure from previous market studies that the regulator has conducted."
He continued: "If the FCA believes that ARs drive significant consumer harm, it would be good to see how and the ways in which additional funding - predominantly from large, well-supervised firms with huge investment in their own controls and systems - will go about addressing this."
FCA consultation
The consultation said the regulator planned to introduce a new flat periodic fee to be levied on principal firms payable on each of their ARs.
The watchdog said its thematic reviews of the general insurance sector in 2016 and the investment management sector in 2019 identified "significant shortcomings" in principal firms' understanding of their regulatory responsibilities for their ARs.
Failings included insufficient oversight of their ARs and inadequate controls over the regulated activities for which they have accepted responsibility.
"We are increasingly seeing more examples of failings through our supervisory and enforcement work," the FCA said. "The range of harms varies considerably - from mis-selling to fraud - but they often stem from principals' failure to oversee their ARs appropriately."
On fees, it said: "We propose setting this new flat fee at £250 which would raise additional funding of c.£10m."
