Negative inflation - doesn't apply to us!

If the Government's (RPI) definition of inflation included an allowance for FSA regulatory costs, I doubt that it would be trading in negative territory.

Over the years, we've regarded the issue of the FSA's fees with a jaundiced and uneasy eye.  We've seen some pretty stratospheric hikes in past years (400% increase in 2004), and each time there's been the unspoken assumption that this was a 'special', and we'd see a return to a more reasonable profile at some stage in the future.  Of course, that's not the way it works!

In practice, what one sees is a periodic ratcheting of financial pain, followed by a period of stability, followed by another hike in costs.  Certainly it is true to say that the Regulator's appetite for cash does not appear to respect either the economy or the finances of that unfortunate group, the Regulated.  Recently, we heard from the FSA's CEO, Hector Sants, that their budget for 2009/10 would rise by 39%, requiring an additional £117m.  We have recently documented to our Members the way in which the FSCS is tapping us for additional sums, thanks to the Government's generosity in increasing the compensation scheme limits for depositors.

That 39% hike is needed because the FSA was effectively caught napping by the banking crisis.  Our own suspicions on this matter were largely confirmed by an interview with Michael Foot, previously FSA MD, who confirmed that the "light touch" regulation enjoyed by the banks was largely inspired by New Labour's ambitions for growth in the financial services sector.  That growth was needed as the finance and banking sector was the 'cash cow' that HMRC milked to pay for the government's burgeoning public sector expenditure.  Such was this dependency, that the proverbial "light touch" led to the blind eyes that allowed the crisis to develop to the point where it could no longer be hidden.

So, no more "light touch"!  In fact, what we are going to see is a major ratcheting up of regulatory activity - which is what requires the additional funding.

Is there anything we can do about it?  Expressing concerns to our MP about the way in which the regulatory systems work in practice might be a helpful step.  On a more immediate, practical level, we suggest that intermediary firms look carefully at the way we charge.  For instance, the average FSA Fee for the 2009/10 year is projected at around £2,451 per Approved Person - and we estimate that about 56% of this is the FSCS Levy.  Is it time, do you think, to invoice each client for a contribution towards at least the latter element, or to build that component into our charging basis?

Or would raising revenues in this way not be 'Treating Customers Fairly'?