The Governance Institute of Australia has called for more thorough consultation on the Federal Government’s proposals for industry funding of ASIC. While the Institute supports an industry-funding model in principle, it is concerned about the lack of detail about how it would work and the lack of any analysis of possible alternatives in the consultation paper Proposed Industry Funding Model for ASIC.
The Institute raises important concerns that the levy should designed to ensure that costs are proportionately borne by those creating the need for regulation rather than a one-size-fits-all approach based on market capitalisation. Such an approach does not take into account that higher market capitalisation companies are generally better resourced and have strong governance, risk and compliance programs according to the Institute.
The Institute seems to be reflecting on the need for listed companies to comply with a more rigorous listing requirements. In this sense, listed companies may be viewed as being lower risk than unlisted companies and certainly giving rise to different types of risk. The key must be to ensure that ASIC has the right level of resources to undertake an appropriate level of supervision of regulated entities having regard not only to the inherent risk they pose to the economy, markets, investors and consumers, but also the extent to which that risk is controlled or managed within their sector (for example through listing rules or other sector-based measures) and by the entity itself.
No doubt larger institutions take more of ASIC's time in an absolute sense but that they would take less time than smaller companies operating in higher risk sectors of the economy on a proportional basis. There is certainly a reasonable basis for concluding as the Institute does that the allocation of ASIC's costs should not be done simply on a capacity to pay basis but should take into account the risk posed by individual companies and sectors and how those risks are managed.
A well-designed user–pays system has the potential to promote approaches and corporate cultures that manage and address risk appropriately. However, the Institute is concerned that this is not recognised in the methodology in the consultation paper.