In August last year, my blog Psst! Asset finance brokers, do you want a 50% discount on FCA fees? Just do a bit less work... reported how asset finance brokers could half their FCA fees by applying to change their level of authorisation from full permissions to limited permissions.
This involves stopping offering debt counselling and debt adjusting services to customers - which means the broker can't obtain settlement figures for existing agreements on behalf of their customers, or advise their customers on whether to cancel existing agreements. The broker is left being able to offer hire or hire purchase broking services (which following FCA handbook definitions should include all leasing agreements other than conditional sale) but would need to ask customers to obtain their own settlement figures where relevant.
At the end of November, the FCA issued a consultation over its proposed fees for 2022/23 and 2023/24. The FCA is now proposing that asset finance brokers will pay a minimum of £2,200. For the majority of brokers including various extra charges, that's around four times their fees in 202/21.
Source: FCA Regulatory fees and levies policy proposals for 2022/23 (CP21/33)
If that wasn't bad enough, from 2021 brokers who have Appointed Representatives (AR) now have to pay £250 per year for each AR or £75 per Introducer Appointed Representative.
If these proposals go forward - the consultation finishes 31 January and the FCA will announce their decision in the summer - a broker currently on full permissions could save up to 77% by 'downgrading' to limited permissions (this is if their commission from regulated consumer credit is up to £10,000 per year, the saving is around 50% if the regulated income is higher).
Correction added 4 Jan: The limited permission fee on which this is based of £500 would only actually apply for one year under the FCA proposals. It would then double in 2023. The saving would then be 50% not 77% for all limited permission firms unless the FCA decides to keep a lower rate for firms with regulated income below £10k. Thanks to Nick McDonald at the Compliance Guys for pointing this out.
To help to understand how brokers would be impacted by these fee increases, I checked the FCA authorisation of 100 asset finance specialist brokers selected randomly from the latest update to my directory of asset finance brokers that currently lists around 440 independent broker firms - the only comprehensive survey of asset finance brokers. The FCA status of these firms is summarised in the chart below.
Source: Asset Finance Policy directory of asset finance brokers January 2022 based on random sample of 100 firms
This analysis shows that only around two-thirds of brokers pay for full permissions. Others are either unregulated, appointed representatives (ARs) of other firms (in the sample of 100 firms, there were five ARs of Asset Finance Solutions, and six ARs of other firms), or authorised with limited permissions.
Of the firms with full permissions, just under half are authorised either to have their own regulated book and/or have appointed representatives introducing business to them.
That leaves 34 out of the 100 firms in this sample paying for full permissions and likely to be smaller firms. It's quite a generalisation so there will be exceptions, but if these fee increases go through it's these firms that might want to consider either changing their regulatory status. Their options include:
Switching to limited permission
Cancelling their FCA authorisation if the higher fees make it it uneconomical to provide services to unincorporated businesses
Becoming an AR of another regulated firm - although a separate FCA consultation currently underway is expected to increase the costs of supervising ARs
Further details of this survey of 100 firms, including their use of ARs and IARs - which is becoming more common, is available free to any firms buying the latest edition of my directory of asset finance brokers. Support is also available to any brokers wishing to discuss their FCA authorisations. For details please see my Asset Finance Resources page at https://www.assetfinancepolicy.co.uk/asset-finance-market-analysis