Select Committee on Treasury Minutes of Evidence


Memorandum submitted by the Financial Services Authority

  On 2 July the Committee asked (Q 388) for a note on the fees which the FSA pays to external consultants. As Howard Davies explained in oral evidence, as part of our supervision of individual firms, from time to time we commission what are called in the legislative language "reports by skilled persons". These are often carried out by the auditors of the regulated firm concerned and involve a report to the firm and to us on aspects of the firm's business, for example its risk management systems or its claims reconciliation procedures. In such cases the regulated firm:

    —  pays the fee; and

    —  typically nominates the skilled person, for our approval.

  The purchasing decision is therefore not the FSA's, and we do not cover such work in this note.

  In relation to the financial year ending 31 March 2002 the position is as follows:

    —  as recorded in our Annual Report—see Table 8.3 on page 59—we spent £10.1 million on professional fees within our "control total". This covers a range of outsourced services and projects, for example the consumer relations helpline and research to inform our policy work on polarisation;

    —  in addition, we incurred professional fees of £6.0 million in areas which do not fall without our control total costs. These included external enforcement costs and the costs of the Baird review of our regulation of Equitable Life. See page 57 of the FSA Annual Report—this is a combination of the external enforcement costs £2.7 million and the regulatory review costs £3.3 million;

    —  regarding the FSA's level of expenditure with accountancy firms—of the totals outlined in the previous two bullets, the FSA's spend with accountancy firms is £5.6 million. £5.2 million of this goes to the "Big Four/Five" with the remainder going to the smaller firms. Out of the £5.2 million, £3.4 million relates to professional fees and £1.8 million relates to secondees.

  We would also like to flag to you an inaccuracy in the joint Memorandum to the Committee submitted by DTI and Treasury. Paragraph 7, describing our listing function, is actually a description of the way we regulate firms; it is not a correct description of the work we do as the UK Listing Authority.

25 July 2002




 
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