The Financial Conduct Authority (FCA) has suggested introducing a variable-rate fee model for principal firms of appointed representatives (ARs).
In its consultation paper for regulatory fees and levies for 2025/26, the FCA said since 2021, it had “undertaken significant work to reduce harm caused by ARs by improving the oversight of ARs by their principal firms”, including “assertive supervision” of high-risk firms and bringing in new rules.
It said that so far, this was funded by a flat rate periodic fee imposed on principal firms in fee block A.22 and based on the number of ARs and introducer ARs they are responsible for.
However, the regulator said most fee blocks had a variable-rate fee model, which meant all firms paid a minimum fee, while larger firms that went above a particular threshold paid a variable fee on top.
It said that the existing fixed fee meant its revenue relied on the population of AR firms registered at the start of the year, which meant costs may not cover its work. When costs are not sufficient, the FCA spreads this across all fee blocks, rather than making the relevant firms accountable.
Alternatively, the regulator said if it proactively charged firms too much to cover this work, principal firms would pay more than needed.
Mind over mortgages: why we need to look after intermediaries’ mental health
Sponsored by Halifax Intermediaries
The FCA said in 2021/22, it introduced a flat rate fee of £250 per AR and £75 per introducer AR, but said since 2023, fees had been increased to reflect changes in costs. Currently, the flat fee for an AR is £289, while it is £87 for an introducer AR.
It added: “We propose to replace the flat rate fee model in fee block A.22 with a variable fee model to make sure we recover the revenue we need. This will reduce the risk of over- or under-recovery. Although a flat-rate fee rate provides greater consistency for firms, if the variable-rate model had been in place this year, the fees paid by individual principal firms would have been the same or close to the fees they actually paid.
“We do not expect our overall funding requirement for next year to change significantly, but this model will make sure that the fee can be adjusted to recover actual costs incurred.”
The regulator said it would retain ARs and introducer ARs as the tariff base, so the variable rate per firm would be calculated by dividing the annual funding requirement allocated to the A.22 fee block by the number of ARs and introducer ARs recorded on 1 April each year.
It also said it would maintain the 30% reduction on the flat rate imposed on introducer ARs due to their limited activities and lower risk of harm.
