Industry to weigh in on ASIC funding model

Stakeholder feedback is sought for the Australian Securities and Investments Commission Industry Funding Model (IFM) review.

ASIC’s IFM review is seeking vested views proffering options, examples of potential changes, and questions designed to examine and address a range of issues set out in the review’s terms of reference, issued last August.

At the time of print, stakeholders had less than 30 days to have their say. Feedback received will be used for the review’s consideration, including whether any refinements are required to the funding model to “ensure its settings remain appropriate”.

Submissions are accepted up until 28 October and may be lodged electronically or by post, though electronic lodgement is preferred, ASIC explained.

All information (including name and address details) contained in submissions will be made available to the public on the Treasury website unless respondents indicate a preference for confidentiality.

ASIC advised, however, that legal requirements — such as those imposed by the Freedom of Information Act 1982 — may affect the confidentiality of submissions.

ASIC regulates banks and financial service providers, sets and enforces banking standards and investigates and acts against misconduct in the banking sector.

ASIC said the increase in ASIC’s total regulatory costs recovered through levies is primarily due to the increase in funding provided by the government (to ASIC) to regulate the financial sector. 

“This includes implementing the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry,” it said. 

Why the review is happening

The federal government has intervened in response to significant increases in levies in the personal financial advice licensee sub-sector, it explained.

“The per adviser levy component for this sub-sector has been capped at its 2018–19 level in respect of 2020–21 and 2021–22,” it said. 

“The cost of this relief is borne by the Government (through general taxpayers) and is not recovered through levies charged to other sub-sectors.

“Actual levies charged for a sub-sector will vary between years, driven by factors including the regulatory effort incurred by ASIC in relation to that sub-sector and the population of the sub-sector.

“In some cases, the changes in levy amounts between years have been significant.”

Since the commencement of the IFM, the amount recovered through levies has increased by $77.5 million or 33 per cent (as at 2020–21), with the population of leviable entities declining by 4 per cent across the period, ASIC confirmed.

Simultaneously, 50 different sub-sectors have experienced either a decrease or increase of 20 per cent or more in their levy amounts year-on-year, with 40 sub-sectors experiencing this level of volatility in multiple years.

“Volatility is more prominent in certain sub-sectors,” it said. 

Consistent concentration of enforcement

“Since the commencement of the IFM, 17 different sub-sectors have experienced more than a 100 per cent increase in their levy compared to the previous year,” it said. 

“The key driver of volatility is enforcement and the associated indirect costs that support enforcement activity, followed by capital expenditure.

“Of the 50 sub-sectors that have experienced either an increase or decrease of 20 per cent or more in their levy amounts year-on-year, enforcement was the single greatest contributor to sub-sector volatility in 40 per cent of cases, followed by supervision and surveillance in 23 per cent of cases.

“The sub-sectors that experience a consistent concentration of enforcement costs each year also experience consistent volatility in levies each year, with enforcement being the key driver.

“While certain sub-sectors have consistently experienced significant volatility in levy amounts… this could change going forward — subject to ASIC’s regulatory priorities which could divert resources and costs to other sub-sectors.”

As there are other factors not associated with ASIC’s regulatory activity that can also contribute to fluctuations in levy amounts, if the number of entities in a sub-sector changes year-on-year, this will impact levy amounts paid by individual entities — even if the total regulatory costs for the sub-sector do not change across years, ASIC explained.

[Related: ASIC nudges banks to pay outstanding $1.6bn in remediation]