Fees regime for financial market infrastructure supervision 2022/23 Consultation Paper - September 2022

Overview

This consultation paper (CP) sets out proposals for the Bank of England’s (the Bank’s) supervisory fees for financial market infrastructures (FMIs)^{footnote [1]} for the 2022/23 fee year. The proposals cover:

• The fee rates to meet the Bank’s 2022/23 funding requirement for its FMI supervisory activity and the policy activity that supports this, as permitted by the Bank’s fee-levying powers.
• A proposed reduction of fees on a case-by-case basis for payment systems based overseas in respect of which the Bank has deference-based co-operation arrangements with the relevant home authority.

The CP additionally sets out the Bank’s application of special project fees (SPF) for the 2022/23 fee year. In 2022/23, the Bank expects to recover approximately £0.30 million through a SPF for supervisory work associated with a significant activity that is time limited and requires additional supervisory resource. The Bank has informed the relevant FMI(s) of its intention to recover these costs in addition to the annual FMI fee. The CP also sets out the rebate payable on 2021/22 fees in the light of lower actual costs incurred by the Bank for that fee year.

This CP is relevant to all FMIs that currently pay FMI supervisory fees to the Bank or are expecting to do so within the 2022/23 fee year, except for non-UK CCPs and non-UK CSDs, the fees for which are subject to separate consultations.^{footnote [2]}

Summary of proposals

The Bank’s annual FMI supervisory fee includes the costs of FMI supervision staff together with relevant policy support, specialist resources, corporate services and other costs associated with the work of the FMI Directorate. A number of functions within the scope of the Bank’s fee levying powers have required further resource in 2022/23 and these are described in the relevant section below.

The total cost for the 2022/23 fee year of the Bank’s FMI supervisory activity and policy activity that supports this, and is within scope of the Bank’s fee-levying powers, is expected to be £11.6 million, representing an increase of 9% on the £10.6 million in total fees levied in 2021/22 (prior to consideration of the rebate for 2021/22, discussed in this CP).

The Bank proposes to apply a reduction to the fees for payment systems based overseas in respect of which the Bank has deference-based co-operation arrangements with the relevant home authority where this means the Bank will incur lower costs for its own supervisory activity. The amount of any reduction would be decided on a case-by-case basis to reflect the specifics of the situation, and this would be communicated bilaterally to the relevant FMI(s).

The proposals in this CP have been prepared under a number of resource assumptions. There may therefore be variation in the final fee rates for the 2022/23 fee year because the final fee will reflect the actual level of supervisory resource expenditure over the course of the year. Any variances will be addressed at the conclusion of the 2022/23 fee year through either a rebate or a request for additional fees.

Implementation

The proposed implementation date for the proposals contained in this consultation is Q3 of the 2022/23 fee year (September–November 2022 inclusive), at which point invoices are expected to be issued for the 2022/23 fee year.

Responses and next steps

The Bank invites feedback on the proposals set out in this CP. Please address any comments or questions to: FMIFees@bankofengland.co.uk or, alternatively to: FMI Fees, Financial Market Infrastructure Directorate, Bank of England, 20 Moorgate, London, EC2R 6DA. The consultation closes on 3 November 2022.

Proposals

FMI fees for 2022/23

This section sets out proposals on FMI fee rates to meet the Bank’s 2022/23 funding requirement for its FMI supervisory activity and the policy activity that supports this, as permitted by the Bank’s fee-levying powers. The FMIs that are currently within scope of the annual FMI supervisory fee are UK CCPs, UK CSDs and recognised payment systems and specified service providers to recognised payment systems. More information can be found on the Bank’s website.^{footnote [3]}

The ratios for allocating fees between the different categories of FMIs within each FMI type remains the same as for the 2021/22 fee year and reflects the different challenges and resourcing requirements posed in supervising different FMI categories. The ratios of fees charged across the categories of FMI are set out in Table A.

The total FMI fees that are expected to be collected in the 2022/23 fee year are £11.6 million. Table B sets out the expected charge for each category of FMI, calculated on the basis of the ratios set out in Table A.

Comparison of proposed 2022/23 fees with 2021/22 fees

The proposed fees set out in Table B represent an increase of 12% for CCPs, 6% for CSDs, and 2% for payment system and service providers relative to the 2021/22 fees (ie the amount individual firms were charged, before the rebate, discussed below). The proposed fees reflect the following developments and initiatives:

• The market turmoil early in the fee year (from 1 March 2022) has required higher levels of supervisory intensity, especially in relation to CCPs.
• The development and implementation of the Bank’s new CCP stress testing regime has required additional resource, and accounts for a sizeable part of the increase in the CCP fees. There will also be ongoing running, development and maintenance costs for CCP stress testing, which are expected to continue in future years.
• The FMI Directorate has required increased supervisory resource to operate the new arrangements with the EU, including the temporary permissions regime. This is a relevant cost for all FMI types. (For the avoidance of doubt, the costs associated with the recognition of non-UK CCPs and non-UK CSDs are accounted for separately.)
• The FMI Directorate has also required increased policy resource to develop the UK’s regulatory rule book in a post EU-withdrawal context, and in particular to provide advice and input to HM Treasury’s Future Regulatory Framework Review and the Financial Services and Markets Bill.^{footnote [4]}
• The increase is also in part driven by a continued focus on, and increased resource allocated to operational resilience, following the implementation of the Operational Resilience policy in March this year.

There has been an increase in the total number of payment systems supervised. This has the effect of increasing total costs of supervising all payment systems and service providers (by 6% versus 2021/22). But, other things equal, it reduces the costs, and hence fees, per firm because relevant fixed costs are spread across more firms. This largely explains why the fees for individual payment systems and service providers set out in Table B have increased by 2% relative to 2021/22 – by a lower amount relative to other FMI types.

Reduction in fees for payment systems based overseas in respect of which the Bank has deference arrangements with the home authority

Fees are designed to recover costs incurred by the Bank in the supervision of the firm on which the fees are levied. These costs are normally determined solely by reference to the type of FMI and the category to which the FMI is allocated. However, some payment systems are based outside of the UK. The Bank is the host authority for these firms and will seek to establish co-operation arrangements with the firm’s home authority where possible and appropriate, such that the Bank is comfortable to generally defer to the home authority’s supervision. This is in line with the Bank’s general preference for strong and effective cross-border supervisory co-operation, avoiding ‘too many hands on the steering wheel’.^{footnote [5]} The Bank will still engage directly with the firm where appropriate, and will incur costs in relation to its interaction with the home authority. Overall, however, such deference arrangements are likely to reduce the Bank’s costs in respect of the firm compared with a situation in which they are absent. The nature and extent of deference will depend on the specific firm and authority in question.

As such, the Bank proposes to apply a firm-specific reduction to the fees set out in Table B where such deference arrangements lead to a material reduction in the Bank’s costs of supervision. The amount of the reduction will be determined on a case-by-case basis, and communicated bilaterally to the firm concerned. For the avoidance of doubt, this mechanism would not give rise to an automatic entitlement to a reduction of fees for overseas-based payment systems and any reductions will be reviewed on an ongoing basis. Furthermore, there is a separate regime relating to the Bank’s recognition and monitoring/supervision of non-UK CCPs and non-UK CSDs. The fees for the Bank’s supervision of non-UK CCPs and non-UK CSDs are being consulted on separately as noted above and are therefore not covered by this proposal.

Special projects fee

In the June 2018 Policy Statement on the ‘Fees regime for the supervision of financial market infrastructure’, the Bank stated that fees charged to FMIs could include work on special projects that fall under the Bank’s supervisory remit for FMIs and are in the scope of the Bank’s fee-levying powers. It also stated that it considers special projects to be one-off or significant activities that may be time limited and require additional supervisory resource.

The hourly costs incurred by the Bank for FMI special projects (including staff salaries and overheads) are the same as the Prudential Regulation Authority’s (PRA) hourly costs for special projects. The PRA recently updated the hourly rates charged to firms for special projects,^{footnote [6]} and the Bank has likewise amended the FMI SPF hourly rates. This change is intended to keep the hourly rate charged to firms reflective of actual costs incurred by the Bank for undertaking special projects, and is being made public in the interests of transparency.

The SPF will continue to follow a quarterly invoicing process.

As a result of a time-limited and significant project that falls within scope of the fee-levying powers, the Bank intends to levy an SPF for the 2022/23 fee year and has discussed this bilaterally with the FMI(s) involved. On the basis of the new hourly rates set out above, it is expected that the Bank will recover approximately £0.30 million through levying this SPF in 2022/23.

Surplus in fees for 2021/22

As set out in the June 2018 Policy Statement, the Bank will set FMI fees based on the expected business-as-usual supervisory resource expenditure for the upcoming fee year. Where the Bank’s spend is greater or less than anticipated, the Bank will consider adjusting its annual supervisory levy for the following fee year to account for any underspends or overspends. Following a final review of supervisory resource allocation in 2021/22, the Bank has identified a total underspend of £0.99 million compared with the total budgeted and levied fees of £10.6 million. The underspend is primarily a result of the FMI Directorate operating below the budgeted and required headcount for much of the 2021/22 fee year owing to unanticipated delays to planned recruitment. This led to a reduction in planned work, particularly in relation to operational resilience.

As a consequence, FMIs will receive a rebate on the fees they paid in 2021/22, as set out in Table D. The rebate will be included in the invoices for 2022/23 annual fees.