PRA Regulated Fees and Levies 2021/22

The Prudential Regulation Authority (PRA) has published a new consultation proposing to change the fees payable by regulated firms for 2021/22. The proposal includes an increase in the fees applicable to credit unions, including both periodic fees and the fee for credit union authorisation. The consultation also announces a budget surplus for 2020/21, that will see a return made to the largest credit unions.

Update: The final PRA regulatory fees and levies for 2021/22 have been confirmed in July 2021 and the regulatory fee calculator based on the final rates for the next fee year is now available.

Increase in the PRA’s Funding Requirements

The Annual Funding Requirement (AFR) is the budgeted amount needed from all regulated firms to fund the PRA’s Ongoing Regulatory Activities (ORA). The consultation projects an increase of in the AFR this year of 6%, or £15.5m. A main driver for increases in the AFR is the increased responsibilities of the PRA following the UK’s exit from the EU. A further factor causing the fee increase is to fund work on operational and cyber resilience.

The final AFR needed for 2021/22 is not yet confirmed – the PRA expect that final AFR may vary by up to £7m on the £15.5m projection. Nevertheless, it is certain that there will be an increase in the overall AFR needed from regulated firms, resulting in fee increases across different blocks of regulated firms.  The exact fees payable for each block will not be confirmed till the summer, with the figures in the consultation stated subject to change

Update: The increase in the AFR for 2021/22 compared to the 2020/21 fee year has been confirmed as £11.6m, £3.9m lower than the projection of a £15.5m increase. However, the decrease in the final AFR compared to the projections has not impacted the final fees for credit unions.

Proposed Periodic Fees for Credit Unions 2021/22

The overall increase in the cost of regulated activities is reflected in a proposed increase in most fees applicable to credit unions. This section provides the proposed rates to be payable by credit unions for the period of 1 March 2021 to 28 February 2022.

The table below provides the minimum periodic fee rates applicable to credit unions, with a comparison made to the previous year’s fees. The minimum fee applicable varies with the size of the credit unions modified eligible liabilities (MELs). Modified eligible liabilities for credit unions is defined by the Bank of England as their United Kingdom business only, being deposits with the credit union (that is its share capital) less the credit union’s bank deposits (investments + cash at bank).

Credit unions with MELs below £10m will only be required to pay the minimum fee respective of their size, as specified in the table below. Please note that the minimum fee for credit unions with greater than £2m MELs is a flat minimum fee for all deposit takers.

The smallest credit unions have remained exempt from the increases and will continue to pay the smallest fees. Medium-sized credit will see a fee increase, but only by the modest amount of £30. Large credit unions will face the same increases as the rest of the deposit-taker block, an increase of £100 in the period minimum fee paid.

The largest credit unions, with MELs exceeding £10m, also pay the tariff-based periodic fee in addition to the minimum fee. The tariff rate for deposit-takers is proposed to be £33.64 per million of MELs above £10m, a slight increase from the previous year’s rate of £33.46.

Update: The final minimum fees for all bands of credit unions remain unchanged from the 2021/22 proposal, with the final fee rates highlighted in the table above. The final tariff rate for deposit takers, paid by the largest credit unions, has decreased marginally from the initial projection to £33.242 per million of MELs above £10m.

Proposed Increase in Authorisation Application Fee

As part of the proposal to broadly increase fees, the consultation proposes to double the authorisation application fees for all the authorisation fee bands. This would include an increase of the cost of PRA authorisation to a credit union to £1500, from the current £750. Though the increase is significant, the authorisation application fee has not been raised since 2001 and will still be below the actual cost to the PRA of authorising a credit union.

Update: The increase to the authorisation fee for new credit unions to £1500 is going ahead as proposed.

Budget Surplus for 2020/21

The consultation further announces that there was an overall budget surplus for 2020/21, including a surplus of £11.9m on its Total Funding Requirement (TFR). This surplus is allocated to firms that paid across all fee blocks, excluding firms that fall within the minimum fee block. This means that the largest credit unions, who paid a tariff-based periodic fee for 2020/21, should expect to receive an allocation from the surplus.

Update: The final surplus calculation for 2020/21 has remained at £11.9m, with credit unions who pay a tariff based periodic fee due to be allocated their portion of the surplus.

Conclusion

Overall, the increases in periodic fees do not present a major cost to credit unions and seem reasonable given that – unlike FCA minimum fees – the PRA minimum fees have not increased in recent years. The stated motivation for the increase in minimum fees is to bring the cost closer in line to the actual cost to the PRA of regulating firms, as the costs of regulating credit unions remain significantly higher than the minimum fees charged. However, it is questionable if the extra funding from credit unions fees will be used to contribute towards the cost of EU withdrawal work that is mainly driving the increase of the AFR. This use of the extra fee revenue from credit unions would be unreasonable, as credit unions are not responsible for the cost of EU withdrawal work.

Further, the increase in the authorisation application fee is notable, but it is unlikely that an authorisation fee of this size would serve as a substantial barrier to new credit unions as this fee is small compared to the other costs of setting up a credit union. Again, the fee increase is understandable given the length of time the fee has remained unchanged and that the fee will still be below the cost to the PRA of authorising a new credit union.

The final regulatory fee rates are expected to be announced and take effect in early July. The changes proposed in this consultation are subject to change and may potentially be amended dependent on feedback received by the PRA. Please share any feedback on the proposed changes with ABCUL by Thursday 13^th of May at policy@abcul.org.