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Financial Services Authority asks for £78m more in funding this year

Watchdog’s running costs will rise 16% to £578m – a cost that insurers and banking groups say will be passed on to consumers

The Financial Services Authority, which came in for heavy criticism for its role in the global financial crisis, says its running costs will rise by 16% in the year ahead, before its functions are split up under a new regulatory structure for the City.

The cost of the new regulatory regime and for an IT upgrade account for most of the £78m rise in funding requirements, which will take the FSA’s total budget to £578m. The regulator insisted that the cost of its core work, entailing supervision, implementing regulations, and enforcement, was not expected to rise above inflation.

The rise in FSA costs will mean higher fees for regulated firms.

Insurers and banking groups said they wanted to be sure the extra cash would not be wasted on administrative costs, and warned that the higher charges would be passed on to consumers.

“We are in favour of smart, effective and growth-focused regulation,” said the British Bankers’ Association. “We know this costs money. But we want to see an increase in fees going on quality regulators and not a hike in bureaucracy and red tape.”

Otto Thoresen, director general of the Association of British Insurers, said: “This massive increase in regulatory fees comes in a year when insurers already face increased costs. Some will inevitably be passed on to the small companies and private individuals who are customers of the insurance industry, at a time when they can least afford it.”

The main factor behind the expanded FSA funding need for 2012/3 is £32m of expected costs of preparing for the authority’s functions to be split between two new bodies: the prudential regulation authority, which will sit within the Bank of England, and the financial conduct authority.

An IT upgrade for those parts of the authority becoming the FCA will also add costs of £22m.

Hector Sants, FSA’s chief executive, said: “We are mindful of any increase in costs to industry and have continued to maintain headcount and keep core operating costs in line with inflation.” © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds