The Bank of England’s fees regime for UK financial market infrastructures

Fee-levying regime

This policy statement (PS) is issued by the Bank in respect of UK central counterparties (CCPs), UK central securities depositories (CSDs), recognised payment systems and specified service providers to recognised payment systems, collectively referred to as financial market infrastructures (FMIs) in this PS. It sets out the Bank’s policy on the levying of fees on FMIs for the purpose of supervision and certain applications by FMIs.

For policy statements for other types of FMIs please see:

• Fees regime for incoming central counterparties
• Fees regime for incoming central securities depositories

Fee-levying powers

The Bank has statutory powers to require FMIs to pay fees relating to supervisory work and for certain applications.

For recognised payment system operators (RPSOs), the Bank has fee-levying powers as set out in section 203 of the Banking Act 2009. Fees levied on RPSOs under the Banking Act 2009 must relate to a scale of fees approved by HM Treasury (HMT).

For recognised clearing houses (RCHs), CCPs and CSDs, the Bank has fee-levying powers as set out in paragraph 36 of schedule 17A of the Financial Services and Markets Act 2000 (FSMA), which cover discharge of the Bank’s functions under or as a result of Part 18 of FSMA, the UK European Market Infrastructure Regulation (EMIR) and the Central Securities Depositories Regulation (CSDR), and Part 7 of the Companies Act 1989.

The Bank also has certain powers to charge FMIs as set out in Regulation 6 of the Uncertificated Securities Regulations 2001, and Regulation 5 of the Settlement Finality Regulations (SFRs).

The Bank will charge supervision fees to FMIs supervised under the Banking Act 2009 or the Financial Services and Markets Act 2000 (FMSA). The Bank’s website sets out the current list of supervised FMIs.

The Bank also proposes to charge fees for applications under FSMA, SFRs and section 170B of the Companies Act 1989.

The Bank’s powers to charge fees do not allow for cross-subsidisation between different types of FMI. The Bank’s fees for FMIs will be based on their importance to the financial system, with reference to the allocation of supervisory resource costs across the different types of FMIs. More information on how we calculate fees is in the section below.

Supervision fees

The Bank will levy fees for its FMI supervisory activity and policy activity which supports this, as permitted by the Bank’s fee-levying powers. This includes the costs of FMI supervision staff together with relevant policy support, specialist resources and corporate services and other costs associated with the work of the Financial Market Infrastructure Directorate (FMID). Other areas of activity undertaken by FMID not within the scope of the powers set out above will be funded by the Levy Framework.

Methodology for levying supervision fees

Fee blocks

The Bank’s mission is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. In line with this mission, the Bank’s supervision of FMIs and use of its supervisory resources is based on the risks presented by each type of FMI, the systemic importance of each individual FMI and therefore the potential impact that each FMI may present to the stability of the financial system. The Bank will levy a fee on FMIs based on their systemic importance to the financial system, with reference to the allocation of supervisory resource costs across the different types of FMIs.

The Bank will levy fees on FMIs based on their potential capacity to cause disruption to the financial system because:

• it provides a consistent and transparent measure;
• it takes into account the higher proportion of supervisory time spent on the most systemically important FMIs which could potentially have a greater impact on UK financial stability; and
• it provides a more consistent measure than levying fees based solely on revenue or number of transactions across each FMI, which do not necessarily reflect systemic importance or supervisory effort.

We recognise that other fee‐levying methodologies are available and that approaches differ across the fee‐levying regimes of regulators such as the Prudential Regulation Authority, Financial Conduct Authority and the Payment Systems Regulator. However, the above provides a transparent methodology which is appropriate to the Bank’s objectives, supervisory model and fee‐levying powers.

Where significant policy changes are envisaged to the fee regime, for example a change in methodology, the Bank may consult on these separately. This could be expected to take place in the autumn preceding the start of the fee year in which they are intended to take effect.

The Bank’s approach to fees uses ‘fee blocks’ for each type of FMI (ie separate fee blocks for: CCPs; CSDs; and recognised payment systems and specified service providers). This means that costs are allocated to each type of FMI and then further allocated between FMIs within that block. This approach minimises cross‐subsidisation between different types of FMIs, for example ensuring that CCPs do not cross‐subsidise the Bank’s work on recognised payment systems and specified service providers or vice versa. The Bank’s approach to FMIs subject to more than one of the Bank’s fee‐levying powers is set out below in the section titled ‘FMIs subject to multiple regimes’.

Category based charging

All FMIs supervised by the Bank are currently categorised into one of three categories for CCPs and CSDs or one of two categories for recognised payment systems and specified service providers,^{footnote [1]} according to their potential capacity to cause disruption to the financial system. FMIs will be charged based on their category, linking fees to the Bank’s mission to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. The Bank’s supervision of FMIs and use of its supervisory resources is based on the risks presented by each type of FMI and the systemic importance of each individual FMI.

The Bank already has a process for categorising FMIs. This Involves an assessment of each FMI against a range of qualitative and quantitative factors, including:

• the number and value of transactions processed by the FMI;
• the nature of the transactions processed;
• the availability of substitutes in the event of a disruption; and
• any links or dependencies with other FMIs.

The FMI categories are described as follows:

1. Category 1 – most significant systems which have the capacity to cause very significant disruption to the financial system by failing or by the manner in which they carry out their business.
2. Category 2 – significant systems which have the capacity to cause some disruption to the financial system by failing or by the manner in which they carry out their business.
3. Category 3 – systems which have the capacity to cause at most minor disruption to the financial system by failing or by the manner in which they carry out their business.

The Bank will inform an FMI of its own categorisation for the purposes of understanding which fee it is required to pay. The Bank does not currently intend to publish a list of FMIs alongside their categories.

Fee ratio across the categories of FMI

The ratio for allocating fees between the different categories of FMIs reflects the different challenges posed in supervising different types of FMI and their categories. Supervisory effort has been used as one of the proxies for determining the respective systemic importance of the FMIs. The ratios across the categories of FMI will be the following:

• For CCPs the ratio between category one, category two and category three CCPs is 1.75:1:0.57.
• For CSDs the ratio between category one, category two and category three CSDs is 1.5:1:0.67.
• For recognised payment systems and specified service providers the ratio between category one and category two firms is 1.5:1.

The Bank would consult again if it proposed to change the ratio for calculating fees between each category of FMI.

FMIs subject to multiple regimes

A number of FMIs are covered by more than one fee‐levying regime. For example, Recognised CCPs/CSDs under FSMA can also have their embedded payment systems recognised under the Banking Act 2009.

We consider it proportionate that the recognised payment systems operated by an RCH are not treated separately as payment systems for fee‐levying purposes. Rather, the Bank will levy a fee on relevant RCHs under one fee block and in accordance with its powers under FSMA.

Fees for operators of multiple recognised payment systems

Under the Banking Act 2009, HMT recognises payment systems, rather than operators of payment systems. This means that there can be two or more recognised payment systems operated by a single legal entity. In these cases, the Bank will consider the appropriate fee on a case-by-case basis. However, the minimum the Bank will charge is the fee for the category that poses the most systemic risk (eg category one if at least one system is in this category) and the maximum is the fee for all systems combined (ie if a scheme operates a category one payment system and a category two payment system, the maximum the operator will pay is the category one fee plus the category two fee). The decision on the level of fees will reflect the supervisory work required and the resources allocated to the supervision of this type of operator. It will also reflect the benefits gained from some economies of scale. Because the efficiency gains will be case specific they will be discussed separately with each operator, however an operator of more than one system will be able to ascertain the maximum fee they could expect to pay.

The decision in respect to the fee amount levied on an operator of multiple recognised payment systems will be revisited during the annual fee setting process (set out later on in this section). In the event of any change to this decision, the Bank expects to liaise with the relevant operator bilaterally when the Bank publishes its public consultation on expected fee rates for the year.

Foreign payment systems

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.^{footnote [2]} 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 will apply a firm-specific reduction to the fees 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.

Special projects

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. As a general principle the Bank considers special projects to be one-off or significant activities that may be time limited and require additional supervisory resource. This could apply to a specific FMI or a group of FMIs.

These fees would be levied on an exceptional basis to cover large‐scale but time‐limited ‘events or special projects. We would levy the fees on the relevant FMIs who precipitate or are directly concerned by the activity driving the project.

The Bank expects to levy this fee infrequently and will liaise with FMIs in the relevant circumstances around the fee and the most appropriate fee levying process. The Bank expects to set an estimated project fee at the outset of the project. If, prior to the start of the fee-levying process, the project is scheduled to start in the forthcoming year, the Bank will collect fees (based on an estimated budget) at the same time as the Bank’s annual supervisory fee. Any over or underspend will be addressed in the next annual fee‐levying process. If the project is not known and only becomes scheduled during the fee year, the Bank will collect fees in the next annual levying process.

The Bank considers that greater clarity regarding project spend can be provided to FMIs that are undertaking a special project by invoicing for actual work carried out on a quarterly basis. The Bank will therefore adopt a quarterly invoicing process for special project fees (SPF), Table A.

Table A: SPF hourly rates (£/hour)

Process for levying supervision fees

The Bank’s fee year is 12 months from 1 March to the end of February. Any new fee rates are expected to take effect from 1 March in each year. The Bank intends to consult annually on fee rates. The Bank acknowledges that FMIs may need sufficient time to plan for the payment of fees. The intention, therefore, is to follow a set annual process. From that fee year and for each subsequent year, it is expected that the Bank will publish a public consultation in Q2 setting out the expected fee rates for that year. This will give the industry an opportunity to respond to the Bank’s consultation on annual fee rates as they are set.

Following that public consultation, it is expected that the Bank will publish a PS in Q3 of each fee year which confirms the fee rates for that fee year, as well as publishing feedback from the consultation and any agreed policy changes. Invoices will be issued to FMIs soon thereafter and it is expected to be no later than Q3 of that fee year. Invoices will be issued with 30-day payment terms.

If it appears to the Bank, in relation to any fee, that in the exceptional circumstances of a particular case it would be inequitable to require payment or to retain sums previously paid, it may at its discretion:

• waive the payment;
• reduce the amount payable; or
• offer a whole or partial refund of sums already paid.

Charging points, overspends and underspends

Supervision fees will be set on the basis of expected business‐as‐usual supervisory resource expenditure for each type of FMI for the upcoming fee year. Where the Bank’s spend is greater than anticipated, the Bank will consider adjusting its annual supervisory levy upwards for the relevant fee block for the following fee year. Where the Bank’s spend is less than anticipated, the Bank will consider adjusting downwards its annual supervisory levy for the following fee year, effectively rebating its underspend to the FMIs within the relevant block. In this way, the Bank will recover its actual costs of business-as-usual supervision.

The Bank keeps under review the level of supervisory resource that is allocated to the population of FMIs which are supervised by the Bank, with a view to ensuring it is appropriate and proportionate. However, the annual fee is set on the basis of expected business as usual supervisory resource expenditure for each type of FMI for the upcoming fee year. The Bank operates the FMI fee regime on a cost recovery basis and therefore undertakes a final adjustment of the annual fee at the end of the fee year.

The Bank will endeavour to give FMIs as much notice as possible if there are any exceptional changes to the annual fee due to circumstances not anticipated at the start of the fee year.

Other considerations

Changes in UK FMI population

During a given fee year there could be changes to the population of FMIs supervised by the Bank, in the form of the recognition/authorisation of new FMIs under the relevant legislation and/or the ‘derecognition’ or withdrawal of authorisation of others.

For all newly recognised or authorised FMIs, the Bank will adopt a pro rata approach to levying fees for the Bank’s subsequent supervision activity. This would mean that the FMI pays the annual supervision fee for its category only for the remaining months of the fee year following its recognition or authorisation.

For FMIs that are derecognised or for whom authorisation is withdrawn during the fee levying year, the Bank will refund for the proportion of the year remaining when a FMI is derecognised or authorisation is withdrawn, subject to any administrative costs.

FMIs may also be recategorised (for example moved from category 2 to category 1) in the course of a year, although the Bank expects this will happen infrequently. The FMI will continue to pay fees based on its previous category until the new levy year, when its fees will be based on its new category.

FMI reserves

The Bank considers that regulatory fees levied by the Bank would form part of the current operating expenses against which FMIs are expected to hold liquid net assets (equal to at least six months operating expenses) in line with the CPMI‐IOSCO Principles for FMIs.

Application fees

As stated under the ‘Fee-levying powers’ section, the Bank has powers to charge fees in relation to certain applications. The population of entities to which these fees could apply is broader than the current population of Bank supervised FMIs, and could include non-supervised FMIs or bodies seeking authorisation, as well as currently supervised FMIs.

Types of application fees

The Bank will charge application fees for applications under FSMA, SFRs, and section 170B of the Companies Act 1989.

Where the Bank receives an application for an initial recognition/authorisation of a UK-based CCP or CSD, the Bank will charge the applicant an initial fee. There will be one application fee rate for each type of application. The fee will be based on the Bank’s expected work effort in handling the application, reflecting the work it will need to undertake before the CCP or CSD is able to operate.

In respect of payment systems and service providers recognised/specified by HMT under the Banking Act 2009, there is no equivalent authorisation process by the Bank and so no upfront work is required by the Bank as a pre‐requisite for that payment system or service provider being recognised/specified. Accordingly, there will not be any charge prior to the recognition of a payment system or the specification of a service provider to a recognised payment system.

Where the Bank is the relevant designating authority under the SFRs, the Bank will charge UK applicants^{footnote [3]} a set application fee, based on the expected work effort incurred by the Bank in determining whether to make a designation order (Table B). The Bank does not propose, at this time, to levy periodic fees for assessing ongoing compliance with the SFRs.

The Bank will also adopt the same approach in respect of overseas CCPs who apply under section 170B of the Companies Act 1989 for an order of the Bank recognising that the relevant provisions of that CCP’s default rules satisfy the relevant requirements. Part 7 of that Act provides certain safeguards for CCPs’ default management processes, most notably with respect to insolvency law.

Table B: Application fees

The point at which fees for certain applications are payable

In relation to the applications that are set out below, the Bank will charge a fee at the point at which the FMI is authorised, recognised or designated or the order is made (as applicable):

• UK CCPs seeking authorisation under the EMIR in accordance with the Financial Services and Markets Act 2000 (FSMA);
• UK CSDs seeking authorisation under the CSDR in accordance with FSMA;
• UK law FMIs seeking designation under the Financial Markets and Insolvency (Settlement Finality) Regulations 1999, where the Bank is the relevant designating authority; and
• non-UK CCPs applying under section 170B of the Companies Act 1989 for an order of the Bank recognising that the relevant provisions of that CCP’s default rules satisfy the relevant requirements.

The amount of each application fee will be kept under review. If the cost of work required is greater or lesser than the fee charged the Bank will reinvoice to charge an additional amount or refund, where it is proportionate to do so. In the event an application is unsuccessful or withdrawn, the fee will not be refunded unless the Bank considers there to be exceptional circumstances. The amount of each application fee will be kept under review to determine whether they are set at an appropriate amount.

FMIs can find information on the estimated and confirmed fee rates for a fee year by consulting the Bank’s website.