European clearing trade body says BoE fees 'remain high' despite 3.2% cut

EACH said in a consultation response published on Monday that the Bank of England’s (BoE’s) supervisory fees “remain high” despite a proposed 3.2% reduction in the general supervision component for central counterparties (CCPs).

The association said it was “surprised that the Bank’s emphasis on working efficiently and prioritising within supervisory work has only led to 3.2% reduction in supervisory fees”.

“We also question whether the proposal is consistent with the UK’s government growth priorities or its innovation objective, due to the proposal leading to funds being kept for fees which could otherwise have been used to improve risk management, operational resilience, or foster innovation,” EACH said in its consultation response.

Concerns over policy development costs

The association said members “respectfully do not support the inclusion of policy development costs in the annual supervisory fee”, arguing that costs associated with developing the UK CCP Rulebook should not be passed on to supervised firms.

“The principle of recovering policy costs through supervisory fees is legally questionable and sets an undesirable precedent,” the association said.

The debate over supervisory fee structures has also emerged in Europe in recent years. In 2023, global clearing trade body CCP Global criticised proposed changes to the European Securities and Markets Authority’s (ESMA) fee methodology for third-country clearing houses, warning that a turnover-based model could disproportionately burden CCPs with large global volumes but limited European business activity.

“CCP Global is concerned that proportioning based on global clearing revenues would disproportionally burden those Tier 1 CCPs with relatively high revenues globally, but relatively limited nexus to the EU,” the association said at the time.

EACH also noted that ESMA does not impose equivalent charges on CCPs for regulatory policy or rulemaking activity.

The group called on the BoE to provide greater transparency around fee-setting, including clearer forecasts over future fee trajectories and more detailed cost breakdowns.

“Provide greater advance transparency over expected fee trajectories as well as a more detailed breakdown of the costs included in the annual supervisory fee,” the association said in its recommendations to the Bank.

Post-Brexit expansion of supervisory fees

The concerns follow several years of rising supervisory costs for clearing houses and other financial market infrastructures following Brexit and the expansion of UK regulatory powers.

In 2023, the BoE proposed increasing fees charged to clearing houses and central securities depositories, citing additional policy work linked to the UK’s Smarter Regulatory Framework and wider oversight responsibilities for international firms operating in UK markets.

At the time, the Bank said it expected to recoup £2.85m from each home regulated “category 1” CCP and £1.38m from central securities depositories, representing annual increases of 5% and 4% respectively.

“CCPs and CSDs have seen an increase as additional CCP and CSD policy work is expected to be chargeable in 2023/24 as a number of initiatives begin to have a direct impact on supervised firms for example powers under the Smarter Regulatory Framework,” the consultation paper said at the time.

Debate over proportionality across FMIs

The response also highlighted concerns around the proportionality of supervisory costs across different financial market infrastructure sectors.

EACH said it broadly supported linking supervisory fees to systemic relevance and supervisory intensity, including through the Bank’s proposed tiered categorisation framework. However, it warned that significant differences remain in the cost burden applied across Financial Market Infrastructures (FMI) sectors.

“Considering the current statutory cap applied to payment systems, we therefore welcome HMT’s proposed review of the regime to help ensure that the overall recoverable costs are allocated in a more balanced and equitable manner across all FMI participants,” EACH said.

The association also raised concerns over transitional arrangements for newly authorised FMIs, arguing that new entrants should bear supervisory costs “on the same basis as established providers”.

“Existing FMIs should not be expected to absorb or offset those costs, particularly in circumstances where new entrants may compete directly with them within the same markets and services,” the association said.

The consultation response concluded by noting that the Bank expects CCP policy activity to reach “a more settled state” once the current transition period is completed, adding that the industry would therefore anticipate “a corresponding easing of supervisory fees in future years”.

This comes as EACH urged ESMA to adopt a principles-based approach to collateral reforms earlier this month, warning that overly prescriptive requirements could limit the use of bank guarantees and reduce operational flexibility for clearing members and non-financial counterparties.

The trade body also argued that concentration limits and collateral eligibility decisions should remain flexible and calibrated by CCPs rather than being tightly prescribed through regulatory technical standards.