Regulatory updates

Due to a simple administrative mistake when completing the FEES Return in February 2010 (and possibly 2011) many firms received an unexpected and substantial invoice from the Financial Services Compensation Fund Limited (FSCS) last year.

Therefore, when completing the FEES Return this February it is important that two key data cells are completed accurately (SD01 and SD02), as incorrect completion of this data could lead to an erroneous FSCS Levy.

Elements to bear in mind when completing the FEES Return are as follows:

1. Some firms will not need to state anything in Data Elements SD01 or SD02.  If they do then the amounts will, most likely, be a fraction of the total attributable revenue in their most recently completed Financial Year.

2. It is essential that firms understand what should go into SD01 and SD02, or more particularly, what should not.

3. A key definition is what is meant by Annual Eligible Income since this will generate the correct level of income to SD01 and SD02.

4. It is vital to establish the period from which to draw the Annual Eligible Income.  The relevant period each February is the firm’s immediately preceding financial year which ended no later than the previous 31 December.  For example, if the firm’s most recent financial year ran to 30 November 2011 then the period for the 2012 FEES Return is 1 December 2010 to 30 November 2011.  However, if the financial year runs from 1 April to 31 March then the period applicable for 2012 is 1 April 2010 to 31 March 2011.

5. The relevant countable revenue is that which the firm accounted for in the relevant period (e.g. 1 April 2010 to 31 March 2011) as a consequence of certain Activities provided to Eligible Claimants.

6. Eligible Claimants are clients who are eligible to make claims through the Financial Services Ombudsman and received compensation from the FSCS.  Typically, this will be revenue generated ONLY from Activities undertaken for Retail Clients.  Many firms are not permitted to undertake Activities for Retail Clients (only Professional and Eligible Counterparties and, most likely will have obtained the FSCS Waiver) when the levels of Annual Eligible Income will be zero (in both SD01 and SD02).  However, care needs to be taken if the firm holds an Operator Activity.  The  FSA will deem that even though their Client is the Fund (and hence a Professional Client), the Operator Activities’ revenue (and only the revenue generated from being an Operator, not as Investment Manager) will be Annual Eligible Income so far as these Operator Activities are in regard to Retail Investors.

7. SD01 should only include Annual Eligible Income from Fund Management Activities (e.g. where the firm undertakes, for Eligible Claimants, Discretionary Investment Management and/or is the Fund Operator).           

8. SD02 should only include Annual Eligible Income from Investment Intermediation Activities (e.g. only in regard to Investment Advice for Eligible Claimants).

How we can help

For further information regarding completion of your firm’s FSCS FEES Return, please contact Andrew Lowin or call 020 7862 0700 to speak to your usual Kinetic Partners’ contact.