Last week, we discussed the recently-announced review of ASIC’s industry funding model.
Under the terms of that review, Treasury will address a range of issues including the types of costs ASIC recovers from the industry, who those costs are recovered from, how costs are allocated across different industry sub-sectors and whether changes to sub-sector composition (due to firm exits, for example) should impact those allocations. Recent volatility in levies will also be investigated along with the impact of time-lags between levy calculations and regulatory action.
The review has commenced, according to Treasury, and there will be a public consultation process later this year. In the interim, though, advisers have a more pressing concern: the ASIC levy for the 2022-23 financial year.
Now that the 2021 freeze has expired, advice businesses could be hit with a substantially larger levy bill mid-next year. After all, before the levy was restored to 2018-19 levels, the industry was facing two massive cost spikes in a row – with no clear indication of how and when ASIC funding would settle to more manageable levels.
For this reason, the FPA has requested an urgent extension of the industry levy freeze into 2022-23 while the funding model review is underway. FPA CEO Sarah Abood explained: “Making financial advice more affordable for all Australians starts with making financial planning more affordable to practice.”
She continued: “There are activities that we’re aware ASIC undertakes that have nothing to do with financial planners yet are funded by financial planners in the current model. The government has had to intervene twice in the past five years because the model isn’t working as intended.
“It is important that any year-on-year increases better reflect the capacity of the financial planning profession.”
Beyond the extension, the FPA has also requested regulations to separate the six largest licensees into their own category for levy calculation purposes. This would go some lengths to addressing the question of whether, as LNP MP Bert van Manen put it, “ASIC has the capacity to ensure that the parts of the industry incurring these large costs actually bear the commensurate responsibility to pay the levy, and that those small businesses in the industry who are not responsible actually pay the levy at a reasonable rate.”
As we’ve noted previously, 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 – regardless of their regulatory “footprint”, so to speak. Given the scope of the ASIC funding model review, advisers can be hopeful that issues of proportionality will be taken into consideration.
What’s less clear, according to Abood, is whether the law as it currently stands actually requires ASIC to recover the costs of ongoing litigation from industry. According to the regulator, those ongoing litigation costs are part of the reason the ASIC levy ballooned in the years leading up to the freeze – as ASIC commissioner Danielle Press explained last year, these costs are “incurred today but not recovered until the litigation is successful, which can be in two-to-three years’ time.”
If ASIC isn’t obligated to pass on those costs, however, Abood said that “consideration should be given to excluding these costs from the levy where these matters are ongoing, until the litigation proceedings are complete and the matter has been determined by the court.”
“This will make it clear whether ASIC has achieved a successful outcome in relation to the litigation, and therefore whether costs will or will not be recovered from the entity subject to litigation investigation and proceedings. This will alleviate the inequitable upward pressure on the levy paid by participants not subject to this enforcement activity.”
