FSA Annual Report 2006/07 - Better Regulation Ltd
FSA Annual Report 2006/07 - Better Regulation Ltd FSA Annual Report 2006/07 - Better Regulation Ltd
Section four – Financial review FSA Annual Report 2006/07 45 2006/07 Financial review Basis of Preparation This financial review is based on our Financial Management Reporting Framework as updated in our Business Plan 2007/08, and set out on page 49 of this Report. We use this Framework for internal management purposes to help monitor and manage our resources. The Framework is also designed to reduce the impact on fees of short term volatility of our costs created by pensions accounting. Net expenditure Cost of our Ongoing Regulatory Activity (ORA) Our net expenditure for the year (excluding costs associated with principles-based regulation) was £269.3m, which is £4.8m less than the budget we set for the costs of our ORA for 2006/07. The tables below analyse in more detail the actual and budgeted total costs for 2006/07, by cost type and function. Our total staff costs were below budget as staffing levels were tightly controlled in line with our plans for reduced headcount. At the same time we funded an increase in performance bonuses (£2.0m) to reflect market conditions and incurred additional contractor costs (£0.8m) in the run-up to outsourcing our IT delivery and development. Table 4.1 Reconciliation of statutory accounts to the Financial Review £m Net costs for the year per the statutory accounts 263.7 Add: Taxation 1.5 Net costs for the year (including taxation) per the statutory accounts 265.2 Add: difference between accounting charges for pensions in the statutory accounts and the related cash costs of pension contributions paid 5.6 Less: costs of implementing principles-based regulation (1.5) Net costs for the year of our ORA 269.3 Table 4.2 Net expenditure by type 2006/07 2006/07 2006/07 Actual Budget Variance £m £m £m Staff costs (including travel, training and recruitment and pension deficit reduction contributions) 217.3 218.4 1.1 Accommodation, office services and depreciation 41.4 41.3 (0.1) IT costs (including IT delivery outsourcing) 12.4 10.5 (1.9) Professional fees – services 13.5 17.6 4.1 Professional fees – projects 10.1 10.9 0.8 Printing and publications and other 4.2 3.8 (0.4) 298.9 302.5 3.6 Sundry income (29.6) (28.4) 1.2 Net expenditure on ORA 269.3 274.1 4.8
46 Section four – Financial review FSA Annual Report 2006/07 IT costs were £1.9m higher than budget due to IS development and delivery outsource set-up costs being incurred earlier than planned and additional resources being employed in system development activity. Professional fees (services) were £4.1m less than budget as the net result of lower enforcement case costs being partially offset by the £1.5m settlement for costs in the Cyprotex case. Enforcement case costs were less than expected because the number of cases was lower, and because of the continued development of the early payment plan (which provides an incentive for early settlement by offering a discount of up to 30% on the amount of the financial penalty that would otherwise be payable). We managed down our professional fees (projects) to compensate for lower than expected industry funding of our financial capability work. In response to industry feedback we have included future funding of that project within our regular periodic fees. Sundry income was higher than expected primarily due to higher than expected authorisation volumes. Expenditure by business unit Retail Markets spent less than budgeted on professional fees (services) as noted above. Regulatory Services incurred additional costs outsourcing the IT development function and additional IS development costs through the year. Corporate Services and Board expenditure was lower than expected due to a combination of lower staff costs and reduced expenditure on professional fees. Table 4.3 Expenditure by business unit Enforcement costs and penalties Our enforcement costs were £32.1m for 2006/07 (£35.6m in 2005/06) including the cost of external accountants and lawyers (£2.9m in 2006/07; £5.2m in 2005/06) brought in to help us with large or complex enforcement cases. As in previous years, we neither budget for penalties arising from disciplinary cases nor use them to fund our activities. During 2006/07 we received penalties of £14.7m (2005/06: £16.9m). Not all of the penalties relating to fee-block A.10 could be returned last year as they were more than the total level of fees due. At the end of the year we therefore held a total of £15.6m of penalties, which will be used to reduce the amounts payable to us by relevant fee-payers in 2007/08. Panel costs Panel costs include the cost of the Consumer Panel (£0.5m) and the combined cost of the Practitioner and Smaller Businesses Practitioner Panels (£0.4m). These figures include the costs of our people who 2006/07 2006/07 2006/07 Actual Budget Variance £m £m £m Retail Markets Business Unit 104.0 105.2 1.2 Wholesale and Institutional Markets Business Unit 75.9 75.2 (0.7) Regulatory Services Business Unit 59.4 56.7 (2.7) Corporate Services and Board 27.5 29.8 2.3 Enforcement 32.1 35.6 3.5 298.9 302.5 3.6 Sundry Income (29.6) (28.4) 1.2 Net expenditure on ORA 269.3 274.1 4.8 support the Panels’ work, the Panels’ independent research, Consumer and Small Business Practitioner Panel members’ fees and expenses, and costs associated with the preparation of the Panels’ annual reports. These costs were slightly lower than budgeted for, mainly because some of their planned research has been delayed to 2007/08. Complaints Commissioner The Complaints Commissioner’s costs mainly comprise those of the Commissioner and his staff, accommodation and ancillary services. In 2006/07 those costs totalled £0.4m, which was in line with budget. Funding We are funded by fees payable by organisations we authorise, recognise, register or list. During 2006/07, £282.1m in fees was raised directly from those fee-payers.
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Section four – Financial review<br />
<strong>FSA</strong> <strong>Annual</strong> <strong>Report</strong> <strong>2006</strong>/<strong>07</strong><br />
45<br />
<strong>2006</strong>/<strong>07</strong> Financial review<br />
Basis of Preparation<br />
This financial review is based on<br />
our Financial Management<br />
<strong>Report</strong>ing Framework as updated in<br />
our Business Plan 20<strong>07</strong>/08, and set<br />
out on page 49 of this <strong>Report</strong>. We<br />
use this Framework for internal<br />
management purposes to help<br />
monitor and manage our resources.<br />
The Framework is also designed to<br />
reduce the impact on fees of short<br />
term volatility of our costs created<br />
by pensions accounting.<br />
Net expenditure<br />
Cost of our Ongoing<br />
Regulatory Activity (ORA)<br />
Our net expenditure for the year<br />
(excluding costs associated with<br />
principles-based regulation) was<br />
£269.3m, which is £4.8m less than<br />
the budget we set for the costs of<br />
our ORA for <strong>2006</strong>/<strong>07</strong>. The tables<br />
below analyse in more detail the<br />
actual and budgeted total costs for<br />
<strong>2006</strong>/<strong>07</strong>, by cost type and function.<br />
Our total staff costs were below<br />
budget as staffing levels were tightly<br />
controlled in line with our plans for<br />
reduced headcount. At the same<br />
time we funded an increase in<br />
performance bonuses (£2.0m) to<br />
reflect market conditions and<br />
incurred additional contractor costs<br />
(£0.8m) in the run-up to outsourcing<br />
our IT delivery and development.<br />
Table 4.1<br />
Reconciliation of statutory accounts to the Financial Review<br />
£m<br />
Net costs for the year per the statutory accounts 263.7<br />
Add: Taxation 1.5<br />
Net costs for the year (including taxation)<br />
per the statutory accounts 265.2<br />
Add: difference between accounting charges for pensions in the statutory<br />
accounts and the related cash costs of pension contributions paid 5.6<br />
Less: costs of implementing principles-based regulation (1.5)<br />
Net costs for the year of our ORA 269.3<br />
Table 4.2<br />
Net expenditure by type<br />
<strong>2006</strong>/<strong>07</strong> <strong>2006</strong>/<strong>07</strong> <strong>2006</strong>/<strong>07</strong><br />
Actual Budget Variance<br />
£m £m £m<br />
Staff costs (including travel, training and recruitment<br />
and pension deficit reduction contributions) 217.3 218.4 1.1<br />
Accommodation, office services and depreciation 41.4 41.3 (0.1)<br />
IT costs (including IT delivery outsourcing) 12.4 10.5 (1.9)<br />
Professional fees – services 13.5 17.6 4.1<br />
Professional fees – projects 10.1 10.9 0.8<br />
Printing and publications and other 4.2 3.8 (0.4)<br />
298.9 302.5 3.6<br />
Sundry income (29.6) (28.4) 1.2<br />
Net expenditure on ORA 269.3 274.1 4.8
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