The Financial Conduct Authority has proposed the introduction of a flat fee upon principal firms for each of their appointed representatives.

In its latest regulated fees and levies consultation paper, the regulator says that its reviews of the general insurance sector in 2016 and the investment management sector in 2019 “identified significant shortcomings in principal firms’ understanding of their regulatory responsibilities for their ARs.

“Failings included insufficient oversight of their ARs and inadequate controls over the regulated activities for which they have accepted responsibility.”

It adds: “We are increasingly seeing more examples of failings through our supervisory and enforcement work. The range of harms varies considerably – from mis-selling to fraud – but they often stem from principals’ failure to oversee their ARs appropriately.”

As a result, the FCA would like to levy a periodic flat fee of £250 for each AR, which it wants to use to raise an additional £10m of funding.

It has created a new fee block – A22 – for principal firms and their appointed representatives.

Regarding fees in other blocks for 2021/22, the A18 block – home finance providers, advisers and arrangers – will see an £18.4m levy, which is a 1.3% increase on the £18.2m levy for 2020/21.

And members of block A2 – home finance providers and administrators – are due a 1.4% increase to £18.8m.

The regulator says that it has acknowledged that the FSCS levy, which has been much criticised, for “certain firms is too high, especially at a challenging time for all businesses” and that it plans to tackle this by having a “stronger focus on firms and individuals who do not meet the required standards.”

The Association of Mortgage Intermediaries chief executive Robert Sinclair says: “It is disappointing that having acknowledged the huge spike in FSCS costs, the FCA is also intent on increasing the cost burden on firms at a time of falling revenues. In apologising for having failed a number of consumers, it is again the good firms who remain who are picking up the bill.

“I am particularly concerned that having found issues in controls over ARs in the investments and general insurance space, a broad brush approach has been applied without consultation. To add a cost of £250 for each AR to a mortgage network without evidence of harm seems unfair.

“Ami will be challenging this rushed change to the rules and the cost to firms robustly.

“For what is another significant addition of new fee classes and costs, a five week response time leaves us very limited time to consult with our membership,” Sinclair concludes.