Industry needs to prepare for changes to how the Australian Securities and Investments Commission (ASIC) is funded, writes John Price.
The Federal Government has introduced new laws that change the way ASIC is funded. Under the new industry funding arrangements, those who create the need for, and benefit from, ASIC regulation will bear the costs.
In response to the recommendations of the Murray Financial System Inquiry, the government began consulting with affected industries on the operation of the industry funding model in April 2016.
The new regime commenced on July 1 this year. Industry funding will allow ASIC to better focus its resources on the sectors that need the most regulation. It provides industry with a strong incentive to self-regulate — because if the wrong thing is done, we will intervene and increase the costs charged to that sector. It strengthens ASIC accountability to, and relationship with, industry, because the cost of ASIC activity will be more transparent.
Those who create the need for, and benefit from, ASIC regulation will bear the costs.
Regulatory costs allocated to sub-sectors
ASIC’s regulatory costs will be allocated to 48 sub-sectors. These include corporates, auditors, insolvency practitioners, credit licensees, Australian Financial Services (AFS) licensees and other regulated entities and individuals.
The level of supervision ASIC undertakes for companies depends on several factors. These include company obligations under the Corporations Act and the scale of potential harm to investors or consumers. The potential effect on the integrity and reputation of Australian financial markets will also differ for each type of company.
For example, ASIC dedicates a significantly larger amount of regulatory effort to listed companies compared with small proprietary companies. This is because listed corporations have the potential to cause greater harm to investors and the reputation of Australia’s financial markets. As a result, listed companies will pay higher levies for ASIC regulatory costs than unlisted public companies, large proprietary companies and small proprietary companies.
How will levies be calculated?
The industry funding model will collect the actual amount spent during the previous financial year. The levies will be calculated and issued in the following financial year. Some entities will pay a flat levy, with the cost of regulating a sub-sector shared equally among the entities operating in that sub-sector. Other entities will pay a graduated levy, with the entity’s size or level of business activity determining their share of costs.
ASIC regulatory costs for small proprietary companies will be collected through a $5 increase to their Annual Review Fee, which will take effect from July 1, 2018. This simple fee increase minimises the reporting burden on small proprietary companies.
New obligations for regulated population
Between July and September each year, regulated entities will provide ASIC with their business activity metrics for the previous financial year. The first collection will occur in July to September 2018 via the ASIC Regulatory Portal, which is currently in development.
For those required to pay a flat levy only
The information you provide will confirm which sub-sector your entity has been operating in. This will allow us to divide our costs with the final number of entities operating in your sub-sector.
For those paying a graduated levy
The information you provide will confirm your entity’s “share” of the leviable activities in your sub-sector and determine your final invoice amount. It is therefore important to have the systems in place to capture this information. Each January, you will receive an invoice via the Regulatory Portal. The first invoices will be issued in January 2019.
Fee for service
The Federal Government is also intending to consult on ASIC fees for service by the end of 2017. We charge these fees when doing work for licensing and professional registrations, applications for relief and reviews of corporate finance transaction documents.
Increased transparency and accountability
Our Cost Recovery Implementation Statement (CRIS) will be published annually in October. The CRIS outlines our expected cost allocations for each sub-sector based on our budget for that financial year. Actual costs of regulating each sub-sector will be covered in our Annual Dashboard Report, published annually in November.
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