What Are Fee Blocks?
Fee blocks are the regulatory mechanism by which the FCA and PRA allocate their annual funding requirements across authorised firms. In essence, both regulators group firms undertaking similar regulated activities into distinct fee blocks. Each firm then pays fees according to the blocks it occupies based on its permissions.
The FCA allocates its Annual Funding Requirement (AFR) across these fee blocks. Each block groups firms conducting broadly similar regulated activities. Consequently, fee blocks exist for deposit acceptors, insurers, fund managers, investment firms, mortgage intermediaries and numerous other categories. Meanwhile, the PRA operates a simpler structure with seven fee blocks covering deposit acceptors, insurers, Lloyd’s participants and designated investment firms.
FCA Fee Block Structure
The FCA’s fee block architecture comprises several main categories. Most notably, the A blocks cover most authorised firms. These include A.1 for deposit acceptors and A.3 and A.4 for general and life insurers respectively. Similarly, A.7 covers fund managers whilst A.10 relates to firms dealing as principal. Meanwhile, investment and home finance intermediaries occupy A.13, A.14 and A.18. General insurance distributors fall within A.19.
Importantly, firms can occupy multiple fee blocks simultaneously. For example, a wealth manager might appear in A.7 for fund management and A.13 for investment advice. In this way, each permission triggers allocation to the corresponding block.
Additional fee blocks serve specialist sectors. Specifically, the B blocks cover recognised investment exchanges and benchmark administrators. The C blocks relate to collective investment schemes. Consumer credit firms occupy either CC1 or CC2 depending on permission type. Finally, the G blocks capture payment services and e-money institutions.
PRA Fee Block Categories
The PRA maintains seven fee blocks. First, A0 represents the minimum fee block for smaller firms. Next, A1 covers deposit acceptors including banks and building societies. Fee blocks A3 and A4 apply to general and life insurers respectively. The Lloyd’s market occupies A5 for managing agents and A6 for the Society itself. Finally, designated investment firms dealing as principal fall within A10.
Notably, dual-regulated firms pay fees to both regulators. In these cases, the FCA charges £1,000 minimum for such firms whilst the PRA charges £600. This contrasts with the £2,000 minimum for FCA-only firms.
How Fee Allocation Works
Both regulators assess the supervisory costs for each fee block. They then allocate their total budget proportionally. Specifically, the FCA divides its Annual Funding Requirement based on anticipated regulatory activity within each sector.
Firms pay fees calculated using tariff data. This measures business scale through metrics like annual income, funds under management or mortgage numbers. In practice, the regulator divides the block’s allocation by total tariff data. This produces a rate per unit which then multiplies against each firm’s individual tariff.
Importantly, thresholds exist within most blocks. Firms below the threshold pay only minimum fees. Typically, FCA aims for around 35 to 45 per cent of firms to fall below these thresholds. This approach prevents smaller firms subsidising larger competitors.
Why Correct Fee Block Classification Matters
Incorrect fee block allocation creates multiple compliance risks. Most obviously, firms in wrong blocks pay incorrect fees. Under-allocation means potential regulatory action for underpayment. Conversely, over-allocation wastes money and distorts internal budgeting.
Furthermore, the regulators determine fee blocks from stated permissions. Permissions must accurately reflect actual business activities. Consequently, discrepancies trigger supervisory attention beyond just fees. Indeed, the FCA and PRA view permission accuracy as fundamental to proper regulation.
Additionally, wrong classifications affect more than current fees. They also influence Financial Services Compensation Scheme levies and Financial Ombudsman Service charges. Therefore, multiple levy calculations flow from fee block placement. As a result, errors compound across all charges.
Moreover, business changes necessitate permission reviews. Launching new products or services may require additional permissions. These then determine to which new fee blocks a firm is allocated.
Checking Your Fee Block Allocation
The Financial Services Register provides the starting point. This public register shows all firm permissions. Therefore, review your entry regularly. Then compare stated permissions against actual business activities.
Next, your annual fee invoice lists allocated fee blocks. The FCA issues invoices through its Online Invoicing System each Spring. The invoice details each block and corresponding tariff data. Accordingly, check these match your permissions and activities.
Additionally, the FCA Handbook contains definitive fee block definitions. Specifically, FEES 4 Annex 1A specifies which permissions trigger which blocks. Therefore, cross-reference your permissions against these rules. The Handbook also details tariff bases for each block.
Steps When Changes Are Needed
First, identify all required permission changes. Map current activities against current permissions. Then note discrepancies. Determine which permissions require variation, addition or removal.
Next, apply through Connect for FCA permission changes. The system handles Variation of Permission applications. Prepare supporting documentation explaining the business rationale. Bear in mind that applications adding fee blocks incur charges. Very roughly you can expect 50 per cent of relevant authorisation fees for new block entry.
Importantly, timing matters significantly. Applications must reach the FCA by 31 March to affect the following year’s fees. Meanwhile, the PRA deadline falls in February. Missing these dates means paying fees for the full coming year regardless.
Furthermore, dual-regulated firms coordinate with both regulators. PRA permission changes often require parallel FCA variations. Therefore, ensure consistency across both applications. Otherwise, misalignment creates complications.
Additionally, monitor fee implications during the process. New fee blocks mean additional charges. Calculate projected costs before applying. Then budget accordingly. Remember minimum fees apply per block in many cases.
Finally, update internal records once approved. Amend compliance manuals and procedures. Brief relevant staff on permission changes. Also ensure tariff data collection covers new activities. Ensure you submit accurate data when regulators request it.
Ongoing Monitoring Requirements
Review permissions annually as minimum practice. Business evolution often outpaces permission updates. Therefore, regular audits catch discrepancies early. Conduct reviews before tariff data submission deadlines each year.
Meanwhile, track regulatory developments affecting fee blocks. The FCA and PRA consult on fee changes annually. These consultations appear in Spring. Changes may affect block definitions or tariff bases. Accordingly, stay informed through policy statements.
Furthermore, document the review process thoroughly. Record permission assessments and conclusions. Maintain evidence of business activity verification. This documentation proves diligence if questions arise later.
Finally, consider external reviews periodically. As independent assessments provide fresh perspectives that internal teams can sometimes overlook. This is a service that the team at Leaman Crellin provides.
Conclusion
Fee block classification represents more than administrative housekeeping. Accuracy ensures proper regulatory funding whilst avoiding compliance breaches. Clearly, permissions must reflect reality. Regular reviews prevent drift between permissions and activities.
Fortunately, both regulators provide clear guidance on fee blocks and classifications. Use their handbooks and fee schedules. Proactive management prevents problems.
Moreover, the annual cycle provides natural review points. Tariff data submission and fee invoicing prompt permission checks. Therefore, build reviews into compliance calendars. Make verification routine rather than reactive.
Ultimately, correct fee block placement benefits everyone. Regulators receive appropriate funding for supervision. Firms pay fair shares based on actual activities. The system functions when participants maintain accuracy.
