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Industry Funding Model for ASIC Moving Closer

Posted on February 28th, 2017 by Sophie Gerber in ASIC

In August 2015, the Australian Government first released the Proposed Industry Funding Model for the Australian Securities and Investments Commission (ASIC) (2015 Model).

It looks as though the Industry Funding Model will kick-start shortly on 1 July 2017. The Government released three draft Bills on the ASIC Supervisory Cost Levy on 22 February 2017, which provide the legislative framework on cost recovery levies to fund ASIC’s ongoing regulatory activities in the coming financial year.

The purpose of the model is to provide additional funding for the regulator. This Industry Funding Model, as part of the package of reforms to be implemented under the Financial Services Inquiry (FSI), will allow ASIC to meet its goals set out under the ASIC Capability Review.

In November 2016, the Government released a revised model for consultation (2016 Revised Model), which had been further developed with the benefit of the extensive feedback received from stakeholder consultations throughout 2015.

The following draft Bills have been prepared for consultation, reflecting the submissions made during consultation of the 2016 Revised Model:

  • ASIC Supervisory Cost Recovery Levy Bill 2017;
  • ASIC Supervisory Cost Recovery Levy (Collection) Bill 2017;
  • ASIC Supervisory Cost Recovery Levy (Consequential and Transitional) Bill 2017.

The proposed Industry Funding Model

The 2015 Model proposed the introduction of a new levy on regulated entities and fees-for-service arrangements. The levies will be used to recover ASIC’s costs in regulating each financial industry sector. The fees-for-services will include licence and registration applications, cancellations, de-registrations, variations, document reviews and application for relief.

Under the 2016 Revised Model, approximately 88% of ASIC’s annual regulatory expenditure would be recovered by imposing levies on participants in the financial markets industry and approximately 12% would be recovered through ASIC charging fees-for-services. Different from the 2015 Model, the levy arrangement was substantially revised in terms of the categorisation of entities and calculation of the levies.

The Government has also delayed the process of addressing the feedback received regarding the implementation of the revised fees-for-service proposal. Accordingly, the existing fees-for-service in the Corporations (Fees) Act 2001 and regulations will remain until a new fees-for-service schedule is introduced. This allows the Government more time to refine the model by gathering further data to support the sizing of the fees. Consultation for the fees-for-service element of the model are expected to commence after 1 July 2017 and the revised fees are expected to be in place by 1 July 2018.

Draft Bills re ASIC Supervisory Cost Recovery Levy

The main purpose of these Bills is to recover ASIC’s regulatory costs in each financial year from the entities who were regulated by ASIC in that financial year. The following outlines the functions of each Bill:

  • The exposure draft of ASIC Supervisory Cost Recovery Levy 2017 has been prepared to impose a levy on persons regulated by ASIC to recover its regulatory costs. This Bills will commence with effect on 1 July 2017. The Financial Year 2017-2018 will be the first year that the Government will be recovering costs. As a result, invoices will not be issued until after 30 June 2018.
  • The exposure draft of ASIC Supervisory Cost Recovery Levy (Collection) Bill 2017 has been prepared to empower ASIC to collect the levy and requires entities to submit annual returns in order for ASIC to calculate the levy amount. It also outlines the entities’ liabilities to levy and penalties.
  • The exposure draft of ASIC Supervisory Cost Recovery Levy (Consequential Amendments) Bill 2017 repeals certain other cost recovery arrangements that will be replaced by ASIC’s Industry Funding Model, such as the existing market supervision cost recovery regime as stated in Section 6A of the Corporations (Fees) Act 2001.

The consultation period for the draft Bills will end on 10 March 2017.

Levies

Once the Bills are introduced and passed in Parliament, the regulations made under ASIC Supervisory Cost Recovery Act 2017 may follow the 2016 Revised Model in terms of the calculation of the levies, which is a two step process outlined below. However, the final details of the calculation method may be subject to change.

Step One

Levies will be allocated to each of the 46 sub-sectors (which are then categorised into six broad sectors) based on ASIC’s actual reported regulatory activities for the previous year. Levies would be calculated after the business activity has occurred and ASIC had finalised its regulatory costs.

Step Two

Individual entity levies will then be allocated based on actual reported business activity metrics. However, a flat levy will be charged for some sub-sectors if there is no relevant activity metric.

The sectors of Investment Management, Superannuation and related services will bear the brunt of the regulatory costs. The proposed levies are as follows, based on the anticipated ASIC regulatory expenses in 2016-2017:

  • Retail OTC Derivatives Issuers: $61,400 annual levy;
  • Market Participants: $9,000 proposed fixed levy + $0.02 per transaction, + $0.002 per message;
  • Deposit Product Providers: $2,000 proposed minimum levy + $0.02 for each $10,000 of deposit liabilities greater than $10 million;
  • Financial Advice Providers:
    – Tier 1 Products to Retail Clients: $960 per adviser;
    – Tier 2 Products to Retail Clients: $1,500 annual levy;
    – General Advice Only to Retail or Wholesale Clients: $920 annual levy; and
    – Personal Advice to Wholesale Clients Only: $170 annual levy;
  • Margin Lender: $11,000 annual levy; and
  • Risk Management Product Providers: $4,500 annual levy.

For more information, please refer to:

Angela Yang

Angela works with the Compliance Team with a particular focus on drafting and amending compliance documentation to tailor to our clients needs. She also assists with AFSL and ACL applications as well as compliance reviews. Angela also works with the Legal Team by providing ongoing assistance in drafting documentation and legal research. Angela assists the compliance consultants in implementing ongoing compliance support, updating procedural documentation and preparing compliance reporting for Compliance Committees and Board of Directors.