The expansion of the Financial Conduct Authority’s scope to include crypto firms has increased its fees by £8mn.
In its fee proposal document released yesterday (April 7), the regulator said the fee will go towards the costs of developing IT systems and recruiting extra staff for the project.
Although the FCA is not responsible for regulating how crypto firms conduct their business with consumers, they have recently been brought under the regulator’s supervision under the money laundering and terrorist financing regulations.
The city watchdog said, since it started processing the applications of these firms in January 2020, it has discovered that businesses in this sector are often “extremely complex and present high risks”.
It has so far rejected 80 per cent of applications, and said it expects the number of firms that pass registration, and therefore pay towards the fee, to be 50.
“This will not be enough to make a material contribution towards recovery of the scope change project costs,” the FCA said, saying it has decided to spread the cost of applications among all the fee payers, instead of recovering the cost through the fees paid by the applicants themselves and using this process as an experimental model.
The regulator said it considers it reasonable to share the costs because all businesses benefit from the confidence that is generated effective control of the gateway, “regardless of the sector of the market they operate in”.
The costs are to be equally split across all “relevant” parties, including financial advisers, portfolio managers, investment and pension fund managers, and life insurers.
These are all included as the firms within them are subject to the money laundering regulations.
“Similarly, the wider body of fee-payers benefits from the market confidence and lower regulatory costs that arise from effective control of the gateway for scope change and so we believe it is reasonable, depending on the prevailing circumstances, to split cost recovery between the new entrants and existing fee-payers.”
However, it outlined feedback from this decision when it was announced last year, and out of five responses from the industry, none favoured sharing the cost more widely.
Complaints included that if this model of fee-spreading were to be adopted, it would be yet another burden for existing fee-payers, and that firms may not wish to subsidise entry to the market of competitors who may win customers from them.
Furthermore, one response said it is not clear that all businesses would benefit, for instance: “It is difficult to see what value a mortgage broker would see in contributing towards IT systems to operate a gateway for cryptoasset businesses or funeral plan firms.”
Despite this, the FCA said it plans to go ahead with the practice of spreading these costs in future similar scenarios.
It said: “We recognise that spreading the cost across the wider body of fee-payers represents an additional charge, equivalent to about 1.8 per cent, on the fee-blocks concerned.”
Read More: Crypto regulation pushes FCA fees up £8mn