The idea that ASIC has no control over the way its costs are levied to the industry has been a major point of contention this year.
When the regulator published its cost recovery implementation statement for 2019-20, outrage erupted throughout the advice industry due to the significant increase in what advisers were required to pay - costs that were difficult (or even impossible) to budget for given the discrepancies between the statement and ASIC's initial estimates. A joint response from Chartered Accountants Australia and New Zealand, CPA Australia, Financial Planning Association of Australia, Institute of Public Accountants and SMSF Association have described the significant levy increase as "shameful," adding that it "highlights serious issues with the funding model and will hasten the exodus of advisers from the industry."
Responding to these criticisms in a parliamentary joint committee hearing, ASIC commissioner Danielle Press said the two factors influencing the levy hike were timing (ASIC’s litigation costs are incurred today but not recovered until much later) and the “numerator and denominator” effect of so many advisers leaving the industry, spreading the levy obligations across an ever-smaller group of industry participants.
This "mechanical" implementation of how the industry funding legislation is written was subsequently challenged by Senator Jane Hume, who told the same committee in which Shipton made his comments that ASIC “does have some level of flexibility and discretion” regarding how these levies are imposed.
Last week, though, Press told attendees at a Stockbrokers and Financial Advisers Association event that while she would "take some heat" for ASIC's initial estimate not reflecting its final cost recovery statement, Senator Hume's idea that ASIC has "flexibility" with the industry funding model is incorrect.
She said ASIC does not, in fact, have discretion, because "the levy is a recovery of the costs we spend." Where ASIC does have discretion, she said, is its spending each year.
While Press said there was "room for a debate" about how the industry funding model has been designed by the Government, there was little point in including her in it. "It comes down to the instrument," she added.
It's unknown at this stage whether a debate on this topic will be within the scope of Josh Frydenberg's Financial Regulator Assessment Authority (which will regularly review ASIC's funding and effectiveness), but what's certain is that advisers and industry bodies likely won't be letting this issue go - especially if ASIC's (leviable) costs increase as a result of it absorbing the administrative functions of FASEA.
And based on the joint statement referenced above, Press is right, to a certain extent. There are fundamental issues in the industry funding legislation which materially effect industry levies: for one, the regulations pertaining to the ASIC Supervisory Cost Recovery Levy Act 2017 have the effect of grouping many different types of financial advice businesses together – from large bank-owned groups to small self-licensed advice practices – which can create (and has created) apparently disproportionate cost burdens for advice businesses while litigation is pursued against large financial institutions.
On top of this, the regular fines and penalties ASIC recovers throughout the year aren't included in the model; instead, they're diverted to the Government's Consolidated Revenue rather than being used to offset annual operating costs.
If there is indeed "room for debate" about how ASIC's costs are levied, it's worth having now - because by ASIC's own admission, we have no idea what the levies will look like next year.
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