Certainty of ASIC funding still in doubt

The Federal Government has released its response to the Final Report of the Murray Financial System Inquiry (FSI), accepting all but one of the FSI’s 44 recommendations. The only recommendation it did not take up was that superannuation be banned from borrowing for investments.

There is one area where the government, while not rejecting the recommendation, has delayed its response. The response to the recommendation that ASIC be provided with a three-year funding model from the government is that it will wait for the report from the ASIC Capability Review before considering this.

This seems to go against the rationale behind the FSI’s recommendation, which was based on addressing the asymmetry currently in place between government funding capacity and ASIC requirements. The three-year funding model was recommended on the basis that it will provide greater stability to ASIC during changes in economic cycles and expansion or contraction of government funding that result from those changes in cycles. Such a model would ensure that ASIC has funding even when government funding contracts during economic downturns, which is the period when ASIC’s resources are more likely to be called upon.

The FSI recommendation for a three-year funding model supported by a user-pays regime was designed to ensure that ASIC can plan how to deploy its resources and have flexibility about where they are needed most. The Capability Review, on the other hand, is to help ensure that ASIC has the appropriate skills and culture to adopt a flexible risk-based approach to its future role. If no certainty is granted to ASIC as to funding over a three-year period, it has no flexibility as to how it spends its budget.

Meanwhile, respondents to the proposed ASIC industry-funding model agree that funding is needed to enable core infrastructure at ASIC, but there are differences of opinion as to how an industry-funded model should operate. On the consumer side there are concerns that an industry-funding model will see large financial institutions having more say in how ASIC operates. On the regulated entity side, there are concerns that the model is predicated on a ‘capacity-to-pay’ approach, which differs from the stated aim of costs being proportionately borne by those creating the need for regulatory supervision..

Overall, there is agreement that the functioning of markets is central to economic growth, and participants benefit from that growth. So contributing to funding makes sense, because it is the price of having an efficient market with integrity. But the central issue revolves around the controls of such a system. Regulated entities highlight the risk of a user-pays system where the regulator targets those with deep pockets.

With most respondents to the ASIC industry-funding model consultation expressing concern with the model offered and the government delaying consideration of a three-year funding model, certainty for ASIC in regards to funding seems some time off yet.

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