FSA's rocketing costs cause fury among City firms

City firms reacted angrily today as the Financial Services Authority said its running costs for the next financial year would rise by an inflation-busting 9.9%.

The regulator said it needed the extra money to "deliver intensive and intrusive supervision".

But insurers, banks, building societies and broking firms, who face much higher than average fee rises, said the regulator was targeting big firms and raising their costs when they were struggling to come out of the recession.

Hector Sants, the outgoing chief executive of the FSA, said: "We recognise that any increase in the industry's costs is unwelcome at a time when margins are under pressure in some segments of the industry.

"However, the overall increases are necessary to deliver our new intensive supervisory approach.

"The new fee structure will ensure that the costs are fairly distributed and the increased investment is paid for by those firms who will be subject to the increased scrutiny."

But one senior banker responded: "It's the smaller firms which need to be watched more closely. That's where the insider dealing and market abuse takes place. The big firms are generally pretty good at policing themselves."

The FSA argues that its new fee structure is fairer and more transparent than before and that it places the burden on what it calls "high-impact" firms.

It said its funding in the coming year would rise by £40.9 million to £454.7 million with a sizable proportion of that due to it taking on an extra 280 staff in its supervisory enhancement programme.

Among the biggest fee hikes are general insurance firms with a 45% rise and deposit takers like banks and building societies with a 12% increase. Between them they will pay for almost £170 million of the FSA annual costs.

Broking firms who hold client money face an 8% rise while firms dealing as principal in investments face a 5% increase.

Areas where firms will have a significant cut in fees paid to the FSA include insurance brokers (down 14%), Lloyds managing agents (down 10%) and life insurers (down 4%).