Firms could be hit with higher costs of Euro regulation

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Senior European regulators are pushing for financial services firms in member states, including the UK, to pay more towards the cost of their expanding regulatory remits.

The European Securities and Markets Authority, the European Insurance and Occupational Pensions Authority and the European Banking Authority were set up in January 2011. Known as European supervisory authorities, their role is to create a single EU rulebook for financial services, but experts say their remit is expanding from drafting legislation to oversight of national regulators.

The bodies currently receive 60 per cent of their total funding from member states, and 40 per cent from the European Union.

The Financial Conduct Authority is set to contribute £890,000 from its budget in 2013 towards the cost of European regulation, while the Prudential Regulation Authority is set to pay £896,000.

Esma chairman Steven Maijoor told a recent public hearing on financial supervision in the EU that its current funding model creates a tension between strengthening both EU and national regulation, as it implies more funding for European regulators means less for national regulators.

He says: “The way we are now funded appears to have become an important problem for the development of Esma. Possible solutions to consider here are decreasing the level of funding by national competent authorities and increasing funding from the EU budget, or from market participants.

”On the latter, while we are already partly funded by market participants, not all Esma activities directly related to market participants are yet funded by them.”

His comments echo those made by Eiopa chairman Gabriel Bernardino, who says in order to strengthen Eiopa’s independence, a “partial financing by levying fees on the industry” should be looked at.

UK financial services firms have seen significant increases in regulatory costs in recent years. The FCA and the PRA have a combined total budget for 2013/14 of £646.3m, a 15 per cent incrasse on the FSA budget of £559.8m for 2012/13. Advisers are seeing a 15.5 per cent increase in regulatory fees from £32.8m in 2012/13 to £37.9m in 2013/14.

Lansons director of regulatory consulting Richard Hobbs says he could imagine a scenario where last-minute EU budget negotiations result in a marginal amount of extra funding for European regulators from the EU, with the rest of the costs falling on the industry.

Philip J Milton & Company managing director Philip Milton says: “This would be yet another levy by unelected, unwanted entities in Europe.”