Innovate Finance: FCA fee arrangements “do not fit” fintechs
Innovate Finance has called for a new approach to the fee-block arrangements which have been set out by the Financial Conduct Authority (FCA), as the current rules are not a good fit for innovative fintech firms.
As part of a written response to a Financial Ombudsman Service (FOS) discussion paper on future funding, Innovate Finance has asked that the ombudsman can “ensure that there are no unintended consequences for small and innovative businesses” when it changes its fee structure.
The FOS has said that it aims to generate income via a 50:50 split between levies and case fees. However, the ombudsman noted that this has not been achievable in previous years due largely to the disruption caused by the pandemic.
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The fintech trade body added that any increase in the levy would be disproportionate, while a 50:50 ratio would lead to unintended outcomes with some firms effectively ‘subsidising’ the poor behaviour of others.
“Current FCA industry fee-block groupings are not designed to reflect any sophisticated risk-based differentiation, and the groupings do not effectively disincentivize behaviour resulting in poor consumer outcomes,” Innovate Finance wrote.
“Many of our members find that their innovative products and services do not fit neatly within the current fee-block arrangements as set out by the FCA, and Innovate Finance supports a move to a risk-based differentiation.”
The trade body added that its members “do not consider that risk-based differentiation goes far enough”, and welcomed clarification from the FOS and FCA on whether they would be willing to revisit this issue.
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“The pace at which fees are increasing poses a significant barrier to entry for firms considering the UK as a place to business, and impacts the financial resilience of existing start-up and scale-up firms,” Innovate Finance said.
“In light of this, we would recommend that the FOS and the FCA work together to undertake a holistic review of the approach to levies and fee-blocks.”
Innovate Finance also called for a bespoke approach for the buy-now, pay-later (BNPL) market, as the cost of lodging a complaint could quickly overtake the cost of the debt.
The trade body said that the average value of a BNPL transaction is less than £65.
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