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

Overview

This Bank of England (the Bank) policy statement (PS) provides feedback to responses to the consultation paper (CP), The Bank of England’s fees regime for financial market infrastructure supervision 2024/25. The PS also confirms:

• the fee rates to meet the Bank’s 2024/25 funding requirement for its financial market infrastructure (FMI) supervisory activity and the policy activity that supports this, as permitted by the Bank’s fee-levying powers; and
• the hourly costs incurred by the Bank for FMI special projects (including staff salaries and overheads) which have increased in line with the Prudential Regulation Authority’s hourly costs for special projects.

This PS 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 FMIs.

Feedback to responses

The Bank’s public consultation on the fees regime for FMI supervision 2024/25 ran from 18 October until 18 December 2024. The Bank received five responses to the consultation. Having carefully considered these responses, the Bank is adopting the proposals as set out in the CP and these are confirmed below in the PS. Details regarding the consultation feedback and the Bank’s responses to the feedback can be found below.

Implementation

Invoices are expected to be issued in February for the 2024/25 fee year.

Bank response to consultation feedback received

The Bank received five responses to the consultation, and the main points raised have been grouped under the following headings.

Timing of consultation and the need for advance notice

Respondents expressed concern over the timing of the consultation and the need for advance notice of future increases. The Bank acknowledges that the consultation took place later than in previous years, relating to the need to fully consider the approach to charging for the one-off costs of developing the central counterparty (CCP) rulebook. In response to feedback from this consultation, in future the Bank will include a forward look section in future consultations on FMI fees to signpost where it anticipates a significant change in the amount of supervision or policy work that would impact fee levels.

Proportionality

Respondents expressed concern that the costs of supervising CCPs are greater than that for other FMI types. The nature of the Bank’s supervisory activity and regulatory regimes, and hence its costs, vary across the different FMI types, and the categories within them. The Bank’s FMI Annual Report and the supervisory approach document provide more detail on the nature of the work undertaken on the different FMI types.

Increase in fees

Respondents expressed concern over the increase in fees.

The increase in fees as a result of policy work: 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 further responsibilities in relation to CCPs, which has led to increased policy work, including one-off work to create the CCP rulebook. The Bank has set out in previous policy statements that it 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 and staff together with relevant policy support, specialist resources and corporate services, and other costs.

The significance of the increase, the trend for fees to increase, the approach to phasing in the increase and the risk that it will become permanent after the one-off costs have been paid: The increase reflects one-off policy costs as well as some increase in staff costs and allocated central costs. The Bank has proposed spreading the charging for the one-off costs for the UK CCP rulebook work across the next three years to reduce the immediate impact, and help firms plan and prepare for the one-off costs of the rulebook work rather than making a larger payment over a shorter timeframe. The Bank recognises firms’ desire for consistency and stability of fees. To the extent possible, the Bank prioritises its supervisory work within an established resource envelope. In 2024/25, FSMA 2023 gave the Bank rule-making powers and further responsibilities in relation to CCPs, which has led to increased policy work, including one-off work to create the CCP rulebook. Once the costs of developing the 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 in comparison and will be consulted on each year as part of the annual FMI fees consultation process. Future material changes to policy prompted by market, domestic or international changes are hard to predict at this stage but would involve revisions to the rulebook. We will aim to use the forward look of future consultations to highlight these where necessary.

Skilled Person reviews

Respondents expressed concern over the cost of firms paying for ongoing supervision and paying for Skilled Person reviews. A Skilled Persons review is one of the regulatory tools we can employ. There are two types of Skilled Persons review that we can commission: s166 Reports by Skilled Persons; and s166A Appointment of Skilled Persons to collect and update information. The cost of such a review is in addition to day-to-day supervision and is borne specifically by the firm under review.

Compatibility of the increase with the Bank’s secondary innovation objective

Respondents expressed concern over the compatibility of the increase with the Bank’s secondary innovation objective. Under FSMA 2023, when exercising certain functions relating to CCPs and central securities depositories (CSDs) the Bank has a secondary objective to, so far as is reasonably possible, facilitate innovation in the pursuit of our primary financial stability objective. One-off costs to develop the CCP rulebook were given effect by the new rule-making powers in FSMA 2023 and the transfer of onshored European Union regulation into UK rules. 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.

Incoming FMI costs

A respondent queried the levying of fees on incoming FMIs and in particular whether there should be a reduction in fees for payment systems based overseas in respect of which the Bank has deference arrangements with the home authority. For FMIs based outside of the UK, the Bank as host authority 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. 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 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.

New FMI costs

A respondent expressed concern over the magnitude of fees relative to the overall expenses for new FMIs. The Bank prioritises supervisory and policy work for those FMIs with the greatest capacity to cause disruption to the financial system should they fail or in the manner they carry out their business. Where FMIs have lower capacity to cause disruption, they are subject to a lower degree of supervisory and policy work (as set out in the categorisation in Table A), and so are charged lower fees.

Policy statement

FMI supervisory fee ratios and fees for 2024/25

The ratios for allocating fees between the different categories of FMIs for 2024/25 remain the same as for the 2023/24 fee year and are confirmed in Table A.

Table B sets out the expected charge for each category of FMI for the 2024/25 fee year.

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.

The ratio for allocating fees between the different categories of incoming CCPs is unchanged since the November 2024 PS. 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.

Special projects fee

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 PS.

Surplus in fees for 2023/24

As set out in the June 2018 PS, 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 amount of the rebate and recovery is set out in Table F.

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