Last week Treasury released a proposals paper seeking feedback and comments on the revised model for the proposed industry funding of ASIC. The proposals paper sets out an updated version of the model first proposed by Treasury in late 2015. The updates are a result of extensive consultation with industry.

Round table meetings are scheduled during the week commencing 28 November 2016 with the formal consultation period scheduled to end on 16 December 2016.

Draft legislation is expected to be available in March 2017, with the model to commence in the second half of 2017. The first payable invoices are expected to be issued in January 2019 to recover ASIC’s 2017-18 costs.

Why is the Government supporting the change?
The primary aim of the model is to ensure that the costs of ASIC’s regulatory activities are borne by those who create the need for regulation and that those costs are borne proportionately with respect to the supervision required by industry participants. Accordingly, what an entity is charged will depend on the nature of the entity and the services it provides.

A primary argument in favour of the change is that full recovery of the cost of ASIC’s regulatory activities from industry users will ensure that ASIC is accountable for all of its regulatory costs to each industry subsector.

The revised model
Under the revised model approximately 88% of ASIC’s regulatory costs would be recovered through levies, with the remainder to be recovered through fees for service.

The model divides the industry into six broad sectors which are broken down further into 46 subsectors. There is no discount for entities that operate across a range of subsectors on the basis that, because ASIC’s supervisory teams focus on specific activities rather than particular entities, there are no efficiencies in scope for ASIC in regulating more complex entities.
Levies will include a cost recovery levy component for regulatory activities which are consistent with the Government’s Charging Framework, and a statutory industry levy component for other activities.

The proposed calculation of levies is designed with the intention that only the efficient costs of regulating each subsector are recovered in a transparent and accountable way:

  • (step 1) Levies are allocated to subsectors based on ASIC’s actual reported regulatory activities for the previous year (i.e. after the business activity has occurred and ASIC has finalised its regulatory costs). These figures are then divided and allocated to each entity participating in the particular subsector.
  • (step 2) Individual entity levies are then allocated based on actual reported business activity metrics or, for some subsectors (where an appropriate metric is not available, or it was judged too burdensome to collect information on a particular business activity only for the purpose off calculating the levy), a flat levy will be charged.

The total levy payable by an entity will depend on the number of subsector levies that the entity triggers. These are cumulative and there is no discount available to entities operating in multiple subsectors.

Fees for service
ASIC’s regulatory activities that are user-initiated and transaction-based will be recovered by a fee that reflects ASIC’s average cost in providing the specific service to individual entities. These activities are licence and registration applications, cancellations, deregistrations, variations, document reviews and applications for relief. These activities account for approximately 12 per cent of its total annual budget for regulatory expenditure.

To address the feedback received in 2015, the implementation of the revised fees for service proposal would be delayed to allow time to refine the model by gathering further data to support the sizing of these fees, for example through time recording.

The existing fees in the Corporation (Fees) Act 2001 (Cth) and regulations would continue to apply from commencement of an industry funding model in the second half of 2017 until the new fees for service schedule for industry funding is introduced. Consultation on the fees for service activities would commence at this time.
Some key observations and comments
On current estimates, the industry regulatory costs to be recovered for the 2017-18 year under the model total approximately $240 million. The ‘corporate’ sector will raise approximately $80.7 million of those funds.

In response to the feedback received from the 2015 consultation process, levies under the revised model are lower than those initially proposed.

Public companies
A minimum levy of $4,000 is proposed for publicly listed disclosing entities, to be capped at a maximum of $4,000 plus $0.33 per $10,000 of market capitalisation above $5 million.

There are flat annual levies for other company types.

Investment management, superannuation and related services
Responsible entities, superannuation trustees, wholesale trustees and investor directed portfolio service (IDPS) operators will bear the predominant burden for regulatory costs. The proposed levies for these entities are approximately:

  • for responsible entities: $7,000 plus $24 for each $1 million under management greater than $10 million
  • for superannuation trustees: $18,000 plus $5 for each $1 million under management greater than $250 million, and
  • for IDPS operators: a flat levy of $47,000 for 2017-18.