The Bank of England’s fees regime for financial market infrastructure supervision 2024/25

Overview

This CP sets out proposals for the Bank of England’s (the Bank’s) supervisory fees for financial market infrastructure (FMI) for 2024/25. The proposals cover:

• The fee rates to meet the Bank’s 2024/25 funding requirement for its FMI supervisory activity and the policy activity that supports this, as permitted by the Bank’s fee-levying powers.
• The Bank’s proposed hourly rates for special project fees (SPF) for 2024/25.
• The actual fees for the 2023/24 fee year including rebate and recovery rates.

This CP is relevant to all FMIs, that currently pay FMI supervisory fees to the Bank or are expecting to do so within the 2024/25 fee year. This includes both UK and incoming (non-UK) FMIs. Fees for the Digital Securities Sandbox were addressed in a separate consultation paper published on 3 April 2024.

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.

• The Bank’s responsibilities have changed since the previous fees were set. The Financial Services and Markets Act (FSMA 2023) gives the Bank rule-making powers and responsibilities. Increased policy work has resulted including one-off work to create the central counterparties (CCP) rulebook. We propose to spread the charging for those one-off costs across the next three years. The total cost for the 2024/25 fee year of the Bank’s FMI supervisory activity and policy activity that is within scope of the Bank’s fee-levying powers is therefore expected to increase to £18.4 million. This reflects these one-off policy costs, as well as some increase in staff costs and allocated central costs. Costs between years are not directly comparable due to changes in the population of supervised firms.
• FSMA 2023 provides the Bank with new rule-making powers in relation to ‘FMI entities’ – UK and non-UK CCPs and central securities depositories (CSDs). Following the UK’s withdrawal from the European Union (EU), EU law was on shored into UK law. These new rule-making powers effect the transfer of these onshored laws into UK rules, for the purpose of advancing the Bank’s Financial Stability Objective and, as a secondary objective, facilitating innovation in the provision of FMI services (including the infrastructure used for that purpose) with a view to improving the quality, efficiency and economy of the services (the ‘Secondary Innovation Objective’).
• This model of regulation provides flexibility and allows the Bank to adapt its approach to rule-making and update its rules in the future, for example in response to new global standards, or to take account of market developments and new business models, including in support of the Secondary Innovation Objective.
• This change in the Bank’s policy responsibilities following FSMA 2023 is the most significant factor driving fee increases this year.
• Under these new responsibilities the Bank is developing a rulebook. This work includes a number of interrelated activities:
  • Embedding the FSMA 2023 accountability framework which includes, for example, the development of a statement of policy on our approach to cost-benefit analysis (CBA).
  • Reviewing the existing firm facing requirements for CCPs: this includes reviewing the existing firm facing requirements for CCPs, in assimilated law and related international standards; developing a format and structure for a consolidated rulebook and completing statutory governance processes including through FMI Committee and the CBA panel.
  • Developing the FMI rulebook: key activities include publishing CPs, including draft rules and a CBA in respect of CCPs; seeking a wide range of feedback from industry and other authorities and analysing responses to the consultation; completing statutory governance processes, including FMI Committee; and publishing policy statements and final rules.
• The cost of this work falls within the scope of chargeable activities as set out in the Bank’s published FMI fees policy. Although it is difficult to be precise, we anticipate the total cost of work over the next two years to develop the UK CCP rulebook to be in the region of £4.5 million.
• We propose to spread the charging for this cost across three years in annual instalments of £1.5 million, allocated across CCPs authorised at the time the costs are incurred in line with the fee ratios set out in Table A. The rationale for this approach would be to allow firms time to plan and prepare for the one-off costs of the rulebook work, rather than making larger payments over a shorter timeframe.
• For 2024/25, this approach would result in a 31.2% increase in CCP fees compared to 2023/24 (excluding the rulebook instalment of £1.5 million, the increase is 10.7%). We will consult on the costs each year as part of our annual FMI fees consultation process and the final instalment for the rulebook work will be adjusted to reflect the actual costs incurred in a similar process to that undertaken for the rebate and recovery process.
• Once the costs of developing this initial UK CCP rulebook have been fully recovered, there will be a degree of ongoing cost to maintain the rulebook. This is expected to be relatively small and will also be consulted on each year as part of our annual FMI fees consultation process.
• The proposals in this CP have been prepared under a number of resource assumptions and there may therefore be variation in the final fee rates for the 2024/25 fee year because the final fee will reflect the actual level of supervisory resource expenditure over the course of the year. Any significant variance will be addressed at the conclusion of the 2024/25 fee year through either a rebate or a request for an additional fee payment.

Implementation

The proposed implementation date for the proposals contained in this consultation is Q4 of the 2024/25 fee year (December 2024 to February 2025), where invoices will be issued for the 2024/25 fee year.

Responses and next steps

This consultation closes on 18 December 2024. The Bank invites feedback on the proposals set out in this CP. Please address any comments or enquiries to: FMIFees@bankofengland.co.uk or, alternatively to: FMI Fees, Financial Market Infrastructure Directorate, Bank of England, 20 Moorgate, London, EC2R 6DA.

Proposals

FMI fees for 2024/25

This section sets out proposals on FMI fee rates to meet the Bank’s 2024/25 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 and incoming central counterparties (CCPs), UK and incoming central securities depositories (CSDs) and recognised payment systems and specified service providers to recognised payment systems. More information can be found on the Bank’s website page for Financial market infrastructure supervision.

UK and Incoming FMIs

The ratio for allocating fees between the different categories of UK FMIs including incoming CCPs and CSDs remains the same as for the 2023/24 fee year and reflects the different challenges and resourcing requirements posed in supervising different types of FMI and their categories. The ratios of fees charged across the categories of FMI is set out in Table A.

Table B sets out the expected charge for each category of FMI.

The Bank applies 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 will be communicated bilaterally to the relevant FMI(s). This is reviewed regularly and may be subject to change.

Comparison of proposed UK FMI 2024/25 fees with 2023/24 fees

The proposed fees set out in Table B represent an increase of 31.2% for CCPs (excluding the rulebook instalment of £1.5 million, the increase is 10.7%), 12.3% for CSDs and 3.5% for payment system and service providers relative to the final 2023/24 fees. The proposed fees for the different populations reflect the following considerations:

• The increase for CCPs is detailed in the Summary of proposals section of this CP and reflects an instalment for the one-off policy work being undertaken to create the CCP rulebook following our new rule-making powers under FSMA 2023.
• For CSDs there is an increase of 12.3% which primarily relates to aspects of the rulebook development work being undertaken for CCPs this year that will apply to CSDs eg embedding the FSMA 2023 accountability framework. Work on the rulebook for CSDs is expected to start after the CCP rulebook work has completed. This will result in one-off costs for CSDs, on which we will consult in due course.
• For payments systems there is a small increase of 3.5% which reflects changes in resource allocation across supervisory activities.

Incoming non-UK CCPs and CSDs

The Bank will levy fees in line with the principles set out in the November 2022 fees regime policy statements for incoming CCPs and incoming CSDs.

The ratio for allocating fees between the different categories of incoming CCPs is unchanged since the November policy statement. The ratios of fees charged and the proposed levies across the categories of CCPs is set out in Table C. The fees for incoming CSDs are set out in Table D.

For incoming Group B and C CCPs we have seen a reduction in fees by 53.6% and for the Group A incoming CSDs by 19.1%. This reflects a lower level of supervisory resource anticipated to be applied across this population of firms this year. The fixed fees for the smaller incoming CCPs and CSDs have remained unchanged.

Special project fee

In the June 2018, the 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 proposed hourly costs incurred by the Bank for FMI special projects (including staff salaries and overheads) shown in Table E have increased and are in line with the Prudential Regulation Authority’s hourly costs for special projects as in their most recent policy statement.^{footnote [1]}

The SPF will continue to follow a quarterly invoicing process.

The Bank will continue to consult bilaterally with any firms subject to an SPF.

Under or overspend in fees for 2023/24

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 under or overspends. Following a final review of supervisory resource allocation in 2023/24, the Bank intends to rebate UK CSDs and recover from UK payment systems and service providers the difference between the total amount of fees collected and the actual spend for all fee-blocks in relation to the 2023/24 fee year. The overspend for UK payment systems is driven by an increase in resource allocated to UK payment system supervision and for CSDs the rebate is due to a reduction in resource allocated. The proposed amount of the rebate is set out in Table F. This is a draft figure and may be subject to change, with the final figure confirmed when the final policy is published.

For all other populations the amounts were in line with expected costs, so no rebate is due.

Bank of England objectives analysis

The Bank of England (the Bank) has considered its objective to protect and enhance the financial stability of the UK, its secondary objective to facilitate innovation in the provision of FMI services and other statutory obligations.

‘Have regards’ analysis

In developing these proposals, the Bank has had regard to the following legislation and regulatory principles:

• Having had regard to the public sector equality duty under the Equality Act 2010, the Bank does not consider the matters in this note to have any implications for equality matters.
• The principle that a burden or restriction which is imposed on a person should be proportionate to the benefits which are expected to result from the imposition of that burden (regulatory principles): by allocating fees in a proportionate way through the use of fee blocks that take into account the size and nature of the Bank-authorised community, the Bank has had regard to this principle.
• The desirability of sustainable growth in the economy of the UK in the medium or long term (regulatory principles): the Bank has had regard to this principle by considering the interests of minimum fee payers and firms not affected by certain Bank activities and by proposing to spread the charging of one-off costs for developing the CCP rulebook over three years.
• The principle that the Bank should exercise its functions transparently (regulatory principles and Legislative and Regulatory Reform Act of 2006): the Bank has had regard to this principle by clearly setting out the basis on which the proposed fees are calculated and providing advance notice of the proposed changes to its fees and charges.
• The desirability where appropriate of the Bank exercising its FMI functions in a way that recognises differences in the nature of, and objectives of, businesses carried on by different persons (regulatory principles): the proposals consider the differences in the business models employed by firms and support innovation by ensuring that they do not result in barriers to new entrants.

The Bank has had regard to other factors as required. Where analysis has not been provided against a ‘have regard’ for this set of proposals, it is because the Bank considers that ‘have regard’ to not be a significant factor for this set of proposals.