Five years in: Treasury to review ASIC’s funding model

Highlighting its commitment to maintaining appropriate and sustainable industry funding arrangements for ASIC that are in step with the times, and appropriate for today’s financial sector, the Government has announced a review of ASIC’s Industry Funding Model (IFM). The Review will be led by Treasury, in consultation with ASIC, the Department of Finance and the Department of the Prime Minister and Cabinet.

What is the Industry Funding Model?

The IFM was introduced in 2017 to establish an “industry pays” model, which aims to recover the costs of ASIC’s regulatory activity from regulated entities. Prior to the introduction of the IFM, ASIC was primarily funded by taxpayers.

Under the IFM, entities pay a share of the costs to regulate their sub-sector through industry levies, based on a range of business activity metrics, and cost recovery fees for service. In the 2020-2021 financial year, ASIC raised $1.51 billion under the IFM.

There are 52 sub-sectors across the following industry funding sectors:

• corporate;
• deposit taking and credit;
• investment management, superannuation and related services;
• market infrastructure and intermediaries;
• financial advice; and
• insurance.

Each year, ASIC publishes its Cost recovery implementation statement (CRIS) that aims to help entities plan and budget for the levies and fees to be charged by providing information on how it will implement the IFM and recover:

• the costs of its regulatory activities from each industry sub-sector (relating to supervision and surveillance, enforcement, industry engagement, education, guidance, and policy advice); and
• its user-initiated and transaction-based regulatory costs via fees for service (for example, licensing, professional registration, applications for relief and review of corporate finance transaction documents),

ASIC then issues levy invoices to each relevant entity to recover such costs between January and March for each leviable year.

The main elements of the IFM Review

Given the IFM has been in place for 5 years, the Government announced that it is an appropriate time to conduct the Review as, over this period, there has been substantial regulatory and structural changes within industry sectors resulting in increased cost pressures within certain sub-sectors.

According to the Review’s Terms of Reference, the Review will consider and, where appropriate, make recommendations regarding:

• the types of costs and nature of ASIC’s activities that are recovered from industry, how those costs are recovered and from whom they are recovered;
• how ASIC allocates costs to sub-sectors (focusing on regulatory activity that impacts multiple sub-sectors, the consequences of time lags between regulatory action and cost allocation, and the changes to sub-sector composition);
• changes in levy amounts since the commencement of the IFM (focusing on sub-sectors that have faced significant increases / volatility in levies over the years, and variance between estimated and actual levies);
• whether key aspects of the design and legislative framework for the IFM remain appropriate, including in light of structural changes in parts of industry;
• the IFM’s flexibility to respond to changes in industry, including emerging industry sectors; and
• the suitability of transparency and consultation mechanisms, including the CRIS, and how ASIC could improve the accuracy of its estimates of costs to sub-sectors.

The Review will also have regard to the temporary levy relief that was rolled out to financial advice licensees in the last two years which resulted in the levies charged to recover the costs in 2020-21 and 2021-22 capped at the 2018-19 level for each adviser. This relief measure was estimated to decrease receipts by $91.1 million over two years from 2021-22.

The Review will not assess or make recommendations on ASIC’s role and regulatory remit, performance, appropriate aggregate level of funding, allocation of resources, or registry fees (which are not within the scope of the IFM).