We are an independent, non-governmental body, which is funded by levies on the financial services industry. We receive no funds from the public purse. Broadly, we use three main types of fee to finance our activities:

1. (1)

   Application fees contribute to the cost of processing applications for authorisation or recognition, or requests for significant variations to the permission of firms that are already authorised.

2. (2)

   Periodic fees are paid annually, to provide most of the funding we require to undertake our statutory functions.

3. (3)

   Special Project fees. These are unlikely to apply to small firms, so they are not covered in this Guide.

This chapter explains more about application fees and periodic fees and how we propose that they will apply to your firm.

We have a number of 'fee-blocks', which group together firms carrying out similar regulated activities, reflecting the fact that they pose similar risks to our objectives. A firm may fall into one, or more than one, fee-block, depending on the scope of its permission.

Any firm applying to us for authorisation has to pay an application fee. We also charge an application fee where currently authorised firms seek significant variations to their permission. Application fees must be paid whether or not the application is successful and are not refundable. This reflects the fact that we commit resources to applications when they are received, so all applications have a cost to us regardless of their outcome.

Until the date we begin to regulate mortgage and insurance intermediaries in October 2004 (NM) and January 2005 (NGI) respectively, application fees for firms wishing to carry out mortgage and insurance mediation activities are tiered depending upon a firm's income level. Discounts apply depending on when, and how, a firm applies for authorisation. We will consult in 2004 on how application fees for these activities will be set after NM and NGI.

An authorised firm may seek to significantly vary the scope of its permission, and that variation, if granted, may cause it to fall into new fee-blocks it was not allocated to before the variation. In these cases, a variation of permission fee is payable, charged at 50% of the equivalent application fee that a new firm falling into the new fee-block(s) would pay.

Application fee rates for mortgage and insurance intermediaries up to NM and NGI are in AUTH 4 Annex 2.

We use our periodic (annual) fees to recover the costs we expect to incur in undertaking our functions. From our budget we derive each year our Annual Funding Requirement (AFR). This total figure is split into an AFR for each fee-block, using our internal costing system. Typically, the permission granted to a firm advising on or arranging mortgages would cause the firm to be allocated to fee-block A.18. A firm carrying out generalinsurance mediation would typically be allocated to the A.19 fee-block. If a firm is carrying out both types of activities it would be allocated to both fee blocks, and pay a fee in each.

The scale on which a firm undertakes activities is measured by each fee-block's 'tariff-base'. The tariff-base is a 'size of business' measure. We have stated that the tariff-base for the A.18 and A.19 fee-blocks will be based on the income a firm earns from carrying out mortgage mediation and insurance mediation activities, respectively. A further explanation of what counts towards the income of a firm conducting mortgage mediation activities, or insurance mediation activities, or both, can be found in AUTH 4 Annex 2 Note 3.

By applying the tariff-base to its business a firm obtains its own 'individual tariff data'. The periodic fees for the firm can then be calculated by combining the firm's individual tariff data with the fee tariff rates for each fee-block it falls into. So, for each fee-block that a firm falls into, the fee calculation is:

Periodic fee = (tariff base data for firm) applied to (fee-block tariff rates)

The fee tariff rates for each fee-block are in the SUP 20 Annexes. We will consult on tariff rates for the 2004/05 'stub' period for the A.18 and A.19 fee-blocks in the second quarter of 2004.

The main sections of the FSA Handbook relating to fees that small firms should be aware of are:

1. (1)

   general provisions regarding fees: GEN 3;

2. (2)

   application fee rules: and current rates per fee-block:AUTH 4 and associated Annexes;

3. (3)

   periodic fee rules, current rates per fee-block and fee-block definitions: SUP 20 and associated Annexes; and

4. (4)

   permission variations: SUP 6 (SUP 6.3.22 R).

Firms should also be aware that in January of each year we produce a consultation paper indicating the proposed fee rates for the coming financial year (1 April - 31 March). The FSA Board makes the final fee rates for the financial year in May (with the exception of application fee rates, which are made in March, before the beginning of the financial year). Small firms should expect to receive a periodic fee invoice in June/July each year.

In June each year our Consolidated Policy Statement on our fee raising arrangements is updated. This document provides further detail on our fee policy, and you will find it under the Publications section of our website