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Acting for You, May 2019

As members working for ASIC regulated entities would be aware, ASIC has recently issued its draft Cost Recovery Implementation Statement (CRIS) for the ASIC funding model for 2018–19. This CRIS provides information on how ASIC will implement the industry funding model and recover both its fees for service and the costs of ASIC’s regulatory activities from each industry sub-sector for the financial year 2018–19. Once ASIC has had an opportunity to consider stakeholder feedback on the draft CRIS it will publish the final CRIS in May 2019.

ASIC will issue invoices for the actual regulatory costs in January 2020. The actual levies will be calculated after ASIC has finalised its actual costs of regulating each subsector in 2018–19 and the actual business activity metrics have been submitted on the ASIC regulatory portal in July to September 2019. ASIC will issue an update via a Dashboard report in December 2019.

In 2018–19, $273 million of ASIC’s total budgeted resources of $406.4 million will be recovered via AISC’s cost recovery levies and statutory industry levies. ASIC’s forecasts of regulatory costs for each subsector are calculated by apportioning the total amount of $273 million between each subsector, based on the amount of effort ASIC projects it will spend regulating each subsector.

Importantly, entities that are registered under the Australian Charities and Not-for-Profits Commission Act 2012 will be exempt. They will not have to pay cost recovery levies because of the unique and important role charities play in society.

ASIC’s costs for regulating small proprietary companies are recovered via an increase in the annual return fee.

A new sector for close and continuous monitoring of certain large financial institutions has been recently introduced and ASIC estimates that it will be recovering an amount of $3.565 million from these entities.

Governance Institute members working for listed entities have raised concerns about the rapidly rising costs of the industry funding levy.

Governance Institute members working for listed entities have raised concerns about the rapidly rising costs of the industry funding levy. Listed corporations pay a levy calculated in accordance with a graduated levy formula based on the entities’ market capitalisation as at the end of the financial year. All listed corporations pay a minimum levy of $4,000 if they have a market capitalisation under $5 million. Entities with a market capitalisation of $5 million or more pay an additional graduated component, depending on each entity’s share of the total market capitalisation of listed corporations in the subsector. The levy is capped at a market capitalisation of $20 billion.

A quick summary of costs estimates and actuals for the entities in the listed corporations subsector highlights the trajectory of these increasing costs:

Listed corporations 2017/18 CRIS Dashboard — Dec 2018 2018/19 draft CRIS
Actual cost recovery amount $33.959 million $50.415 million $62.923 million
Levy metric Minimum levy of $4,000 plus $0.19 per $10,000 of market capitalisation above $5 million. Minimum levy of $4,000 plus $0.30 per $10,000 of market capitalisation above $5 million Minimum levy of $4,000 plus $0.39 per $10,000 of market capitalisation above $5 million
Maximum levy $396,000 $605,317 $785,654

We expect that ASIC’s more intensive regulatory activity and its new ‘why not’ litigate approach to enforcement will cause the costs of regulation to continue to increase.

Governance Institute has lodged a submission with ASIC highlighting our concerns over these increasing costs. We pointed out that Governance Institute has long advocated for a model of joint industry and government funding for ASIC and has previously provided submissions to Government and been involved in stakeholder roundtables. Governance Institute had argued at that time that the proposed model (which was subsequently adopted by Government) was not proportional and aligned to expected need for regulatory oversight and activity, but predicated on size and financial capacity. We anticipated that the model would result in well-run entities subsidising badly behaved entities and argued for an approach which incorporated a form of risk weighting attached to the market capitalisation metric. At the roundtable which we attended with a number of stakeholders at the time of the consultation on the model, Treasury advised that the concept of attaching a risk weighting has been discarded as it would impose too great a workload on ASIC which would in itself increase compliance and regulatory costs.

In our current submission, Governance Institute has pointed out that the draft CRIS now uses ASIC’s actual historical costs of regulation broken down by activity and attributed to each sub-sector. We question whether the reasons for not using a risk weighting based on actual regulatory costs may no longer apply and that ASIC may indeed be able to attribute specific costs on a more granular level which would allow for a direct economic link between regulatory activity or effort and levies incurred.

We pointed out that government and other stakeholders have previously highlighted concerns about ASIC’s accountability for its regulatory costs. These concerns have increased for our members based on their experiences of the 2017/18 industry levies which for many companies substantially exceeded budget estimations. Concerns over the continuing increases in the ASIC Funding Levy are compounded further by the late notice of the amount of the impost in most business planning and budgeting cycles. Businesses paying the levies do not have unlimited resources to fund ASIC’s activities. Annual increases in the levy should not be ‘shocking’ or ‘unpredictable’ in size.

Our members continue to have concerns about ASIC’s accountability for the efficient use of its resources taking into account that industry is now funding ASIC’s regulatory activity. We consider that ASIC’s long term planning and budgeting process must be sustainable for its stakeholders and ASIC must have accountability for operating within those limits. Accordingly, we consider that it is timely to revisit the funding model to ensure that it is operating fairly and efficiently and those entities which generate the need for regulatory oversight and activity bear the appropriate portion of the costs.

Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

While the Final Report released in early February 2019 was directed at the financial services sector, there are clear implications for the governance of organisations in all other sectors. Policy and Advocacy issued a member-only Insight on governance issues. The second member-only Insight released in April 2019 looks at practical issues arising from the royal commission and themes from the APRA Report on Commonwealth Bank of Australia in relation to culture.

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