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1. Overview
1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses to consultation paper (CP) 7/23 – Regulated fees and levies: Rates proposals 2023/24. It also contains the PRA’s final policy, as follows:
- the fee rates to meet the PRA’s 2023/24 Annual Funding Requirement (AFR) for the financial period Wednesday 1 March 2023 to Thursday 29 February 2024 (fee year); and
- amendments to the Fees Part of the PRA Rulebook (Appendix 1).
1.2 This PS is relevant to all firms that currently pay PRA fees or are expecting to do so within the 2023/24 fee year.
Background
1.3 In CP7/23, the PRA made proposals on:
- the fees rates to meet the PRA’s 2023/24 AFR;
- changes to the internal model application fees and the model maintenance fee;
- updates to supervisory statement (SS) 3/16 to include the information provided in Rules 2.9 and 2.10 in the Fees Part of the PRA Rulebook;
- how the PRA intends to distribute a surplus from the 2022/23 AFR; and
- the retained penalties for 2022/23.
Summary of responses
1.4 The PRA received three responses to the CP. Respondents made a number of observations and requests for clarification which are set out in Chapter 2. After considering the consultation responses received, no changes have been made to the proposals outlined in the CP. However, Table 2.C in the CP, shown in this PS as Table 1.B in Chapter 3, has been updated to show this year’s tariff data for both general insurers and life insurers.
1.5 When making rules, the PRA is required to comply with several legal obligations, including considering responses to consultation and publishing an explanation of the PRA’s reasons for believing that making the proposed rules is compatible with its objectives and with its duty to have regard to the regulatory principles.footnote [1] In CP7/23, the PRA set out this explanation in Chapter 5: PRA objectives analysis, and below the PRA has provided updated explanations taking into account consultation responses.
1.6 In carrying out its policymaking functions, the PRA is required to have regard to several matters, as set out in CP7/23 in Appendix 3, ‘The PRA’s Statutory Obligations’. In CP7/23 the PRA explained how it had had regard to the most relevant of these matters in relation to the proposed policy. Below the PRA provides feedback to consultation responses received to CP7/23, details of the PRA AFR for fee year 2023/24 and allocation of retained penalties in fee year 2022/23 under the financial penalty scheme. As no changes are being made to the policy consulted on in CP7/23, the PRA has not updated its summary of the ‘have regards’ assessment.
Implementation
1.7 The implementation date for the PRA Rulebook: PRA Fees Amendment Instrument 2023 and the updated SS3/16 – Fees: PRA approach and application is Monday 3 July 2023.
Online fees calculator
1.8 The Financial Conduct Authority (FCA) provides an online fees calculator to enable firms to calculate their periodic fees for the forthcoming year, using the PRA rates (set out in Appendix 1). The updated fees calculator for 2023/24 fees, and levies using the final fee rates as set out in this PS, will be available for firms to use from Tuesday 4 July 2023.
2. Feedback to responses
2.1 Before making any proposed rules, the PRA is required by FSMA to have regard to any representations made to it, and to publish an account, in general terms, of those representations and its feedback to them.footnote [2]
2.2 The PRA has considered the responses received to the CP. This chapter sets out the PRA’s feedback to those responses, and its final decisions.
2.3 The PRA received three responses to the CP, regarding the following:
- reduction year-on-year to the AFR;
- the minimum fee;
- timing of the PRA’s business plan;
- separate fee block for building societies; and
- fee tariff data to be used for final fees calculation.
Reduction year-on-year to the AFR
2.4 Two respondents welcomed the year-on-year reduction in the PRA’s AFR highlighting the adverse impact high inflation is having on the industry. One respondent went on to state that the factors highlighted in paragraph 2.4 of CP7/23 were welcome evidence of the PRA restraining its costs.
The minimum fee
2.5 In CP7/23 the PRA proposed not to increase the minimum fee in the 2023/24 fee year. One respondent was supportive of the decision not to propose an increase to the minimum fee.
Timing of the PRA’s business plan
Separate fee block for building societies
2.7 One respondent considered that building societies should have their own fee block. The feedback highlighted the ‘lower risk and domestic focus of building societies when compared to banks’ and suggested the PRA adopts a fees approach that incorporates both size and risk in a more proportionate way. The PRA’s approach to fees is risk-based and matches a firm’s fee as closely as possible to the risk it poses to the PRA’s objectives. For the deposit taker fee block specifically, the fees methodology does this by basing a deposit taker’s fee on its modified eligible liabilities (largely consisting of its customer deposits) and by having fee rate tiers to weight the fee block’s allocation towards those firms with the largest modified eligible liabilities.
3. Annual Funding Requirement for 2023/24
3.1 The PRA’s AFR for 2023/24 is £309.3 million, which is £3.2 million lower than the AFR for 2022/23 of £312.5 million. The AFR is £6.4 million higher than proposed in CP7/23 due to an updated assessment of the impact of external market conditions on anticipated pensions costs and an increase in central service costs from the Bank.
3.2 Table 1.A sets out the allocation of the PRA’s AFR to fee blocks for 2023/24 fee year and provides comparison to the draft allocation set out in CP7/23, and the allocation for 2022/23 fee year.
Table 1.A: Allocation of AFR for 2023/24 to fee blocks and comparison to the draft allocation* |
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|
£ million |
Final AFR |
Draft AFR |
Change |
2022/23 AFR |
Change |
|
|
A0 |
Minimum Fees |
0.6 |
0.6 |
– |
0.7 |
(0.1) |
|
A1 |
Deposit takers |
193.9 |
189.8 |
4.1 |
195.9 |
(2.0) |
|
A3 |
Insurers – general |
44.3 |
43.3 |
1.0 |
44.7 |
(0.4) |
|
A4 |
Insurers – life |
53.8 |
52.7 |
1.1 |
54.4 |
(0.6) |
|
A5 |
Managing agents at Lloyd’s |
1.8 |
1.8 |
– |
1.8 |
– |
|
A6 |
The Society of Lloyd’s |
2.3 |
2.3 |
– |
2.3 |
– |
|
A10 |
Firms dealing as principal |
12.6 |
12.4 |
0.2 |
12.8 |
(0.2) |
|
309.3 |
302.9 |
6.4 |
312.5 |
(3.2) |
||
Footnotes
- (*) Rows and columns may not sum due to rounding
3.3 Table 1.B sets out an analysis of the final tariff data for 2023/24 fee year, used to allocate the PRA’s AFR to firms within fee blocks compared to the draft data presented in CP7/23.
Table 1.B: Analysis of tariff data for allocation of fees within fee block compared to draft tariff data (*) |
||||||||
|
Fee block |
Tariff basis |
2023/24 final number of firms |
2023/24 draft number of firms |
Mvt to number of firms |
2023/24 final tariff data (£ billion) |
2023/24 draft tariff data (£ billion) |
Mvt to tariff data |
Mvt in fee rates from draft |
|
A0 |
Minimum Fees |
1,294 |
1,296 |
(0.2%) |
n/a |
n/a |
n/a |
– |
|
A1 |
Modified Eligible Liabilities |
728 |
728 |
0.0% |
3,903 |
3,901 |
0.1% |
(2.0%) |
|
A3 |
Gross Written Premiums (GWP) |
305 |
300 |
1.7% |
82 |
75 |
9.3% |
9.4% |
|
Best Estimate Liabilities (BEL) |
144 |
140 |
2.9% |
8.3% |
||||
|
A4 |
Gross Written Premiums (GWP) |
147 |
151 |
(2.6%) |
107 |
106 |
0.9% |
(1.2%) |
|
Best Estimate Liabilities (BEL) |
1,061 |
1,253 |
(15.3%) |
(17.1%) |
||||
|
A5 |
Active Capacity |
58 |
57 |
1.8% |
49 |
48 |
2.1% |
(1.4%) |
|
A10 |
Total Trading Book Assets |
8 |
8 |
0.0% |
2,620 |
5,549 |
(52.8%) |
(52.7%) |
|
Financial & Operating Income |
20 |
42 |
(52.4%) |
(53.1%) |
||||
Footnotes
- (*) Rows and columns may not sum due to rounding
3.4 The final fee rates for 2023/24 are largely unchanged from those stated in CP7/23 for the deposit acceptors and managing agents at Lloyd’s fee blocks. As highlighted in the CP, the indicative fee rates for the A3 and A4 fee blocks were completed using 2022/23 fee tariff data, as the Solvency II reporting deadline was after the publication of the CP which meant the draft rates were a less useful predictor of the final fee rates. The A10 fee block tariff data in the CP erroneously included group data whereas the data above is presented at solo level. The overall A10 contribution to the PRA’s Ongoing Regulatory Activities (ORA) is unchanged, although how the costs are distributed amongst the fee block population will differ slightly from what was set out in the CP.
4. Annual Funding Requirement – surplus and retained penalties for 2022/23
Confirmation of surplus for 2022/23 relative to CP7/23
4.1 CP7/23 stated that there was a surplus of £0.8 million between the total fees collected for 2022/23 and the PRA’s actual spend, based on a draft, unaudited figure. This included retained financial penalties and other fee income. Following the finalisation of the PRA’s annual accounts there is no surplus for 2022/23.footnote [3]
Retained penalties for 2022/23
4.2 For 2022/23, there are retained penalties of £2.6 million which the PRA will allocate across fee blocks under the financial penalty scheme using firm population data for 2022/23 (the financial year to which the retained penalties relate). This amount will be refunded to firms across all fee blocks excluding those firms that incurred fines.
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