By Mark Kleinman, City Editor
The City regulator will set out plans for an inflation-busting increase in its budget this week, just days after sparking fury from insurers over the launch of a probe into some industry practices.
Sky News has learnt the Financial Conduct Authority (FCA) will say on Monday it has calculated an annual funding requirement for 2014-15 of just under £450m, approximately 3% above the £432.1m it said it required last year.
The news will be disclosed in the FCA's business plan, which will also set out some of the priority areas for its work during the next 12 months.
The increase, which is designed to cover the cost of delivering the regulator's new competition objectives, will hit the pockets of the biggest banks and insurance companies hardest.
Sources said they would be expected to foot a disproportionate chunk of the rise, which could further inflame tensions with insurers following Friday's announcement of a review of the treatment of life insurance policy-holders who have so-called closed accounts.
The FCA briefed one newspaper about the impending review by its supervisory division, which led to billions of pounds being wiped off the value of the major insurance companies whose shares trade in London.
Some, including Legal & General, issued statements during the day complaining that a false market had been allowed to develop in their stock.
Martin Wheatley of the Financial Conduct Authority The FCA took more than six hours to issue a clarifying statement about the terms of its review, after which many of the companies affected saw their shares rebound.
After the stock market closed, the regulator issued a further statement in the wake of an emergency board meeting which is said to have been demanded by furious Treasury officials.
"The FCA Board acknowledges the concerns of the market regarding today's press coverage of the FCA's proposed supervisory work on the fair treatment of long standing customers in life insurance. The FCA put out a statement of clarification this afternoon," it said.
"The board will conduct an investigation into the FCA's handling of the issue involving an external law firm, and will share the outcome of this work in due course."
Reports on Sunday suggested the position of the FCA chief executive, Martin Wheatley, could be threatened by the fiasco, but several leading insurers and fund managers suggested privately they were prepared to await the outcome of the investigation before passing judgement.
The FCA's 2014-15 budget of more than £440m does not take into account the cost of regulating thousands of consumer credit providers, which will transfer to the auspices of the City regulator for the first time this week.
Sky News understands fees will be frozen for thousands of the smallest firms regulated by the FCA, with the minimum charge remaining at £1,000.
The big high street banks pay in the region of £30m each in fees, while major insurers fork out between £10m and £15m to the FCA.
Under changes implemented by George Osborne, the Chancellor, the FCA has to pay to the Treasury the financial penalties it levies rather than using them to reduce industry fees to the extent that occurred in previous years.
The FCA declined to comment on Sunday.
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