PS11/24 – Regulated fees and levies: Rates proposals 2024/25

1: Overview

1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses the PRA received to consultation paper (CP)4/24 – Regulated fees and levies: Rates proposals 2024/25. It also contains the PRA’s final policy, as follows:

• the fees rates to meet the PRA’s 2024/25 Annual Funding Requirement (AFR) for the financial period Friday 1 March 2024 to Friday 28 February 2025 (‘fee year’); and
• amendments to the Fees Part of the PRA Rulebook (Appendix 2).

1.2 This PS is relevant to all firms that currently pay PRA fees or are expecting to do so within the 2024/25 fee year.

1.3 None of the PRA statutory practitioner panels were consulted about the proposals in CP4/24.

Background

1.4 In CP4/24 the PRA proposed:

• the fees rates to meet the PRA’s 2024/25 Annual Funding Requirement (AFR);
• changes to the internal model application fees, the model maintenance fee and the fee payable for insurance business transfers under Part VII FSMA;
• setting out how the PRA intends to allocate the surplus from the 2023/24 AFR (Chapter 3); and
• the retained penalties for 2023/24 (Chapter 4).

1.5 In determining its policy, the PRA considers representations received in response to consultation, publishing an account of them and the PRA’s response (‘feedback’). Details of any significant changes are also published. In this PS, the ‘Summary of responses’ contains a general account of the representations made in response to the CP and the ‘Feedback to responses’ chapter contains the PRA’s feedback.

1.6 In carrying out its policymaking functions, the PRA is required to have regard to various matters. In CP4/24 the PRA explained how it had regard to the most relevant of these matters in relation to the proposed policy.

Summary of responses

1.7 The PRA received two responses to the CP. The name of the respondent to the CP who consented to their name being published is set out at Appendix 1. The other respondent did not consent to the PRA publishing their name. ‘Respondents made a number of observations and requests for clarification which are set out in Chapter 2.’

Changes to draft policy

1.8 This PS takes account of how the policy advances the PRA’s objectives. These are set out in CP4/24. Having considered the responses, the PRA has decided to maintain its proposed approach, therefore the analysis of its objectives and have regards in CP4/24 remains appropriate.

Implementation

1.9 The implementation date for the PRA Rulebook: PRA Fees Amendment Instrument 2024 is Tuesday 9 July 2024.

Online fees calculator

1.10 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 rate (set out in Appendix 2). The updated fees calculator for 2024/25 fees and levies, using the final fees rates as set out in this PS, will be available for firms to use from Friday 5 July 2024.

2: Feedback to responses

2.1 Before making any proposed rules, the PRA is required by the Financial Services and Markets Act (FSMA) 2000 to have regard to any representations made to it in response to the consultation, and to publish an account, in general terms, of those representations and its feedback to them.^{footnote [1]}

2.2 The PRA has considered the representations received in response to the CP. This chapter sets out the PRA’s feedback to those responses, and its final decisions.

2.3 The PRA received two responses to the CP, regarding the following:

• how the allocation to the A6 fee block is decided;
• internal model fees;
• Part VII transfers; and
• PRA pensions liabilities.

2.4 The PRA has considered all the responses set out above and has decided to maintain its proposed approach as set out in CP4/24.

Allocation to the A6 fee block

2.5 The A6 fee block relates to the Society of Lloyd’s and its subsidiaries. Both respondents queried why, in Table 2.C, the increase to the A6 fee block was higher than the overall increase to the Ongoing Regulatory Activities (ORA). The difference in percentages was down to the PRA calculating them using the rounded figures. When the percentages are calculated using the unrounded figures, the percentage increase is the same as for the ORA. The invoices issued to firms will be calculated using the unrounded figures.

2.6 One respondent sought clarification on how the A6 fee block allocation is calculated with another respondent saying they were unclear on whether the approach to the A5 and A6 fee block allocations was consistent with the level of engagement and oversight provided by the PRA. In paragraph 2.6 of the CP the PRA states the allocation to fee blocks is based on the anticipated work to be performed by the PRA within each area and reflects the PRA’s risk-based approach. The fee block allocations have been consistently determined by the activities the PRA anticipates conducting in the forthcoming fee year, so there is a direct link between the allocations and the level of oversight applied.

Internal model fees

2.7 One respondent noted the PRA’s proposal to raise the model application and model maintenance fees in line with Consumer Price Index (CPI) inflation and wondered if any efficiencies have been realised since the development of internal models. The PRA will continue to keep its approach to assessing models under review and seeks to obtain efficiencies wherever possible.

Insurance Part VII transfers

2.8 One respondent queried how the PRA’s proposal to increase the regulatory transaction fee relating to insurance Part VII transfers is consistent with the PRA’s intention to increase solvent exit planning set out in CP2/24 – Solvent exit planning for insurers and would welcome a review of the Part VII transfer process. The PRA does not view the proposed increase to be sufficiently material to pose a barrier to the solvent winddown process. The PRA continues to keep its processes under review.

PRA pensions liabilities

2.9 One respondent stated that firms are unable to price their products and services to directly account for any significant movements in the PRA’s pensions liabilities and queried if firms should assume the risk for smoothing the PRA’s pensions liabilities when they fall due. The PRA’s pensions costs form part of its TFR. Under FSMA, the PRA’s TFR is solely funded by the fees and levies charged to dual regulated firms.

3: Annual Funding Requirement for 2024/25

3.1 The PRA’s AFR for 2024/25 is £331.3 million, which is £22.0 million higher than the AFR for 2023/24 of £309.3 million. The AFR is unchanged from the AFR proposed in CP4/24.

3.2 Table 1.A sets out the allocation of the PRA’s AFR to fee blocks for 2024/25 and provides comparison to the draft allocation set out in CP4/24, and the allocation for 2023/24 fee year.

3.3 Table 1.B sets out an analysis of the final tariff data for 2024/25 fee year, used to allocate the PRA’s AFR to firms within fee blocks compared to the draft data presented in CP4/24.

3.4 The final fees rates for 2024/25 are largely unchanged from those stated in CP4/24. As highlighted in CP4/24, the indicative fee rates for the A3 and A4 fee blocks were completed using 2023/24 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.

3.5 The final proposals for the model maintenance fees are unchanged from those proposed in CP4/24 except for correcting a typo in the draft instrument relating to credit institutions with modified eligible liabilities in excess of £40,000 million or designated investment firms with total assets for fees purposes in excess of £100,000 million operating an AMA (advanced measurement approaches) model.

4: Annual Funding Requirement – surplus and retained penalties for 2023/24

Confirmation of surplus for 2023/24 relative to CP4/24

4.1 CP4/24 stated that there was a surplus of £6.0 million between the total fees collected for 2023/24 and the PRA’s actual spend, based on a draft, unaudited figure. This includes retained financial penalties and other fee income. Following the finalisation of the PRA’s annual accounts, the surplus is confirmed to be £6.0 million.^{footnote [4]}

Retained financial penalties 2023/24

4.2 For 2023/24, there are retained financial penalties of £4.2 million, of which £1.9million is included in the calculation of the £6.0 million retained surplus from 2023/24. The £1.9 million benefit will be applied across all fee blocks excluding those firms that incurred fines.