Banks Braced For £600m City Regulation Bill

By Mark Kleinman, City Editor

Britain's big banks will this week be asked to pay tens of millions of pounds a year more towards the cost of regulating the financial sector under the coalition's new "twin peaks" system of supervision.

I understand that the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), which took over responsibility for City regulation last week, will outline plans to charge a total of approximately £600m in fees to major banks, brokers and insurers - a hike of more than 20% on last year's figure.

The "fee blocks" for different categories of City firms will be published in consultation papers by the two new watchdogs.

Insiders say they are set to increase the aggregate amounts payable by the biggest universal banks such as Barclays and Royal Bank of Scotland by tens of millions of pounds annually, representing a substantial chunk of the fees increase.

"The PRA's remit is to focus on the major risks within the financial system, and the biggest banks are at the centre of that focus," a source said.

Under the Financial Services Authority (FSA), the predecessor body to the FCA and PRA, the financial industry paid £489.1m last year to its regulator.

The big banks paid on average between £20m and £30m each, according to previously-published figures, whereas under the new regime they are expected to pay in the region of 25% more.

Although the overall budget increase had been anticipated, the extent to which big banks would be forced to stump up for it was unclear until now.

Last week, the FCA set out plans to charge £391.5m in fees, a figure which included a discount based on the recouping of some enforcement costs. The regulator is responsible for supervising the behaviour of 26,000 firms.

The PRA, which is part of the Bank of England and employs 1300 staff supervising 1,400 banks and insurers, will announce its budget and fee proposals on Tuesday.

Andrew Bailey, the PRA chief executive, told the Treasury Select Committee recently that "the starting point was to set a budget for the PRA in its first year which is no higher than what we think the PRA would have cost during the next year under the current FSA set-up".

That comment implied that the PRA's budget in 2013-14 could be no higher than £235m. Insiders said the actual figure to be disclosed would be lower, and probably in the region of £210m.

The PRA has previously set out its approach to levying fees, but the consultation will shed the first light on exactly how much the big banks will be liable to pay.

"In April 2013, the Bank will explain the allocation of the PRA's annual funding requirement across the six categories of firms that it will prudentially regulate, and consult on the fee rates proposed for firms in the fee blocks. Firms will have two months to respond to the proposals," the PRA said recently.

Chancellor George Osborne is taking steps to prevent the financial industry benefiting from fines paid by regulated firms.

Under the FSA, fines levied for misconduct were used to reduce the following year's fee pool, but under the new Financial Services Bill, the FCA must pay all penalty income directly to the Exchequer.

The major banks are unlikely to criticise the fees increase publicly, given that the new bill confronting them will still be modest in the context of their operating income.

The FCA and PRA declined to comment further ahead of the announcements.

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