Legislation for the Australian Securities and Investments Commission’s (ASIC) industry funding model became effective on 1 July 2017. Under the ASIC Supervisory Cost Recovery Levy Act 2017 (Cth) (Act), any entity that is regulated by ASIC (leviable entity) will need to pay a levy for the financial year they were regulated to recover ASIC’s regulatory costs. All companies registered under the Corporations Act 2001 (Cth) are leviable entities, with Australian financial services (AFS) licensees and Australian credit licensees specifically identified. The first invoices will be issued in January 2019 and will recover costs for regulatory services for the 2017-18 financial year. On 14 July 2017, ASIC released Report 535 ASIC cost recovery arrangements: 2017-18, which provides greater detail on how the levies will be applied.

Levy amount

The Act outlines that the amount of levy payable is to be worked out in accordance with regulations and legislative instruments prepared annually. The ASIC Supervisory Cost Recovery Levy Regulations 2017 (Cth) (Regulations) outline the mechanisms to calculate levies payable.

Broadly, the Regulations impose either a basic (i.e. flat/fixed) or graduated (i.e. variable) levy, or some combination of both (i.e. a graduated levy with a fixed minimum component and a variable component), on leviable entities in different industry subsectors regulated by ASIC. The type of levy depends on the level of variation in ASIC’s regulatory costs for that particular subsector.

For example in the financial advice sector, an AFS licensee providing general advice only to retail or wholesale clients will be subject to the basic levy. Under the Regulations, the basic levy would be calculated as the regulatory costs divided by a “metric” (which is a number determined by ASIC in an annual determination) for all AFS licensees providing general advice in the financial year. However if the AFS licensee is also authorised to provide financial product advice to retail clients, and provides personal advice in the relevant financial year, they will also be subject to the graduated levy.

Other subsectors of note that are identified as leviable entities include custodians, managed discretionary account providers, payment product providers and responsible entities of registered schemes. A full list of subsectors is available in Schedule 1 of the Regulations.

Licence authorisations

Given the applicable levies for leviable entities, licensees should be aware that these changes may impact what services they seek to offer. Under the Regulations, licensees may be required to pay both flat and graduated levies if they form part of two or more of the relevant subsectors. Licensees should consider the suitability of the authorisations they currently possess on their licence, and whether they are necessary for their core business given the potential to attract additional levies for services which may be ancillary.

Collections and penalties

Additionally, the ASIC Supervisory Cost Recovery Levy (Collection) Act 2017 (Cth) (Collection Act) establishes penalties in the event of late payment or shortfalls in payment of levies required. The Collection Act imposes a penalty at the rate of 20 per cent per annum for failure to pay by the due date.

Where a person makes a false or misleading statement to ASIC in a return which results in a lower levy, the Collection Act also imposes a penalty of twice the shortfall amount. Further administrative action may be taken if any levies or penalties remain unpaid for 12 months (e.g. deregistration or licence suspension or cancellation).

ASIC Report 535

In addition to providing an overview of the implementation of cost recovery arrangements discussed above, this report also details changes to the cost recovery methodology for each subsector in 2017-18.

These changes have been implemented as a result of feedback received by Treasury in response to its proposals paper titled Proposed industry funding model for the Australian Securities and Investments Commission, which was released in November 2016.

Key highlights include:

  • Corporate sector: All unlisted public companies will be charged a flat levy. There is no longer a specific subsector for small proprietary companies. Instead, ASIC’s regulatory costs will be recovered through an increase, from 1 July 2018, to the annual review fee for proprietary companies.
  • Credit intermediaries: The graduated component of the credit intermediary levy will be charged on the number of authorised representatives the intermediary has at 30 June of the relevant financial year.
  • Payment product providers: A flat levy will apply in 2017-18, which will be replaced by a graduated levy in 2018-19 based on revenue from payment product provider activity. A minimum levy of $2,000 will be payable by all payment product providers.
  • Responsible entities (RE): The graduated component of the levy will be the total value of assets as at 30 June in registered schemes, excluding assets that are an interest in another registered scheme operated by the RE.
  • Crowd-sourced funding (CSF) intermediaries: Although licence arrangements are not in place for CSF intermediaries, ASIC’s report states that the Government will consider the appropriate mechanism to recover regulatory costs once these arrangements are finalised. For more detail on Australia’s developing CSF framework, please see our recent insight.
  • Financial advice sector: A fixed levy of $1,500 applies for AFS licensees authorised to provide advice on relevant products, and the graduated levy for these licensees is based on the number of advisers on the Financial Advisers Register. However, for securities dealers, large securities exchange participants and large futures exchange participants, the graduated component will not include advisers who only provide advice on quoted products, products traded on a foreign financial market or basic banking products.