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Unravelled: A step closer to industry funding of ASIC

7 April 2017

Written by Partner Belinda Thompson and Lawyer Kelly Roberts

Last week, the Federal Government moved another step closer to implementing an industry funding model for the recovery of ASIC's costs, by introducing the ASIC Supervisory Cost Recovery Levy Bill 2017 (as well as two related Bills) into Parliament. These Bills implement the recommendations of the Financial Services Inquiry and the Senate Economics Committee that ASIC be industry funded, and follows a number of rounds of industry consultation on exposure drafts and proposal papers.

Background

The core principle underlying the industry funding model is clear – the costs of ASIC's regulatory activities should be borne by those that create the need for regulation. The idea here is that a user pays model will make industry more accountable for its behaviour. These Bills align ASIC's funding model more closely with that of the APRA, as well as international regulators such as the Financial Conduct Authority in the United Kingdom and the Securities and Exchange Commission in the United States.

Who will pay?

All ASIC regulated entities will be required to pay a levy. The Bills contemplate two different approaches to allocating entities into sectors: either by criteria specified in the regulations or according to the definition of 'regulated entity' which divides entities into eight categories, namely:

  • a company registered under the Corporations Act 2001 (Cth);
  • a financial services entity;
  • a credit services entity;
  • a market infrastructure entity;
  • an audit entity;
  • a liquidator entity;
  • a company-like entity; or
  • a person regulated by ASIC who is in a class of persons prescribed by the regulations.

Each of these sectors will then be broken down into sub-sectors which will be defined in the regulations. An entity may fall into more than one sector or subsector.

How much will you pay?

Those that demand the highest level of regulation by ASIC will need to pay more to the regulator – large corporates and banks seem the most likely to foot the bill for the lion’s share of ASIC's regulatory costs.

So, how much are you likely to pay? The Bills themselves do not provide an answer to this question; rather they contemplate that the methodologies that will be used to apportion ASIC’s regulatory costs will be set through a combination of regulations and legislative instruments. At the time of writing, the relevant draft regulations have not been released. If the Government's Proposals Paper released in November 2016 (the Proposals Paper) is anything to go by, the regulations may contain over 40 different methods for apportioning ASIC's regulatory costs.1

We do know that the accumulative amount of any levy paid by regulated entities should not exceed ASIC’s total regulatory costs. ASIC’s projected regulatory costs for the 2017-18 financial year is approximately $240 million.2 We also know that the amount paid by each entity will depend upon the nature of the entity and the services it provides – the ultimate amount you pay will be the result of all the subsectors that your entity falls into for the relevant year.

In the absence of draft regulations, ASIC's Supporting Attachment to the Proposals Paper serves as the best guide for entities wanting to estimate their likely cost exposure. For example, indicative levies calculated in this paper include:

  • Public companies – $4000, plus $33 per $1 million of market capitalisation above $5 million (with a levy cap of $662,000);
  • Superannuation trustee – $18,000, plus $5 per $1 million of funds under management greater than $250 million;
  • Credit providers – $2000 plus $15 per $1 million of credit provided (other than under a small amount credit contract) greater than $100 million; and
  • Personal advice providers on Tier 1 products – $960 x number of advisers listed on the Financial Advisers Register.
How is this going to work?

So, practically speaking, how will this work? Essentially, the Bills suggest that:

  • some entities will be required to give a return to ASIC. The Government says that this will increase the regulatory burden on entities, with around 7,500 entities having to establish new reporting systems to provide ASIC with additional data;
  • ASIC will issue a legislative instrument that will set out what its regulatory costs were for the relevant financial year, as well as information on how those costs are to be apportioned across entities;
  • levy amounts will be determined according to the methods set out in the regulations and ASIC will issue notices to entities setting out the amount of levy and when it is due and payable; and
  • where applicable, a 20 per cent late payment penalty will apply (some circumstances may warrant a range of other administrative action such as deregistration, licence suspension or cancellation).
What’s next?

With the Bills scheduled to take effect from 1 July 2017, it appears that it is full steam ahead for the industry funding model. This would mean that the first year that the Government would recover ASIC’s regulatory costs from industry would be the 2017-18 financial year.

According to a media release from the Minister for Revenue and Financial Services, we can expect to see draft regulations for the Bill in the coming weeks. The Government has said that these draft regulations will outline the specific levy mechanisms and provide greater detail on the operation of the model. A further round of industry consultation will likely be conducted on these draft regulations.

Conclusion

Although the Bill provides the broad framework for ASIC’s industry funding model, it is fairly light on in terms of detail. As is often the case, the devil will be in the detail that will be set out in the regulations. A close analysis of these regulations will be required to estimate entities' likely cost exposure. When more details emerge, businesses should look closely at their reporting structures to ensure that any additional information ASIC will require as a result of this model is built into normal reporting structures.

It is also important that ASIC is encouraged to undertake its activities with optimal efficiency – the FSI Inquiry recommended that enhanced accountability arrangements for ASIC accompany the introduction of a user pays funding model. Implementing the recommendations of the ASIC Capability Review may go some way to improving ASIC's accountability, but ensuring that the regulator is accountable for its spending will remain an important factor as this model is introduced.

We will continue to closely monitor and keep you informed of developments in this space.

Footnotes
  1. Australian Government, Proposed Industry Funding Model for the Australian Securities and Investment Commission Proposals Paper, November, p 37-40.
  2. Australian Government, Proposed Industry Funding Model for the Australian Securities and Investment Commission Proposals Paper, November, p 7.

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