ASIC chair Joe Longo

ASIC will create an entirely new body to focus on how it regulates and where it can reduce spending in an effort to stop the cost burden from spilling over as part of the funding model legislated by government in 2017.

In its quadrennial corporate plan released this week, ASIC says the planned body’s creation is one of its key initiatives for the next four years.

“We will create a dedicated unit within ASIC to identify and implement changes to how we administer the law, with a focus on minimising regulatory costs for businesses,” ASIC states. “We will further work to streamline the way our stakeholders interact with ASIC to support the more efficient and effective delivery of our regulatory remit.”

News of the unit’s formation and a new focus on minimising costs will be welcomed by financial advisers, who have been hit with by increasing funding levies characterised as a “kicks in the guts” by regulatory experts.

The ASIC levy for retail financial advisers includes a $1,500 fee per license as well as a ‘graduated component’ fee per adviser. This fee started at $934 in FY17/18 before rising to $1,142 in FY18/19 and $2,426 in FY19/20.

In July ASIC forecast another steep increase for FY20/21, this time more than triple the original fee at $3,138.

The regulatory costs now run alongside the broader regulatory burden as a common reason advisers cite leaving the industry.

At Professional Planner‘s Best Practice Forum in July, ASIC’s acting senior executive leader for financial advisers Leah Sciacca noted that the industry ‘cost recovery’ funding model is legislated by government, not the regulator.

Sciacci attributed the increased costs to increased activity in enforcement, surveillance, and “special project areas” following the Hayne Royal Commission.

According to its corporate plan ASIC spends 53.5 per cent of its effort on enforcement and 26.4 per cent on supervision and surveillance, with other matters like engagement (4.5 per cent) and regulatory applications (6 per cent) filling out the gaps.

ASIC has $462.6 million in available funding, down 6 per cent on last year. The decrease is mainly due to the partial transfer of the registry function to the Australian Tax Office.

Why not help?

News of the unit dedicated to minimising costs comes amid a broader thematic change from the regulator in its monitoring and enforcement activities.

Instead of the “why not litigate?” mantra ASIC adopted at the royal commission, a more supportive and accommodating stance befitting the pandemic era has been taken.

Out of four key regulatory activities outlined by ASIC in the corporate plan, the first was a pledge to help the financial system rejuvenate by promoting economic recovery, “including through better and more efficient regulation, facilitating innovation, and targeting regulatory and enforcement action to area of greatest harm.”

The last point is key; instead of litigation as a default setting, taking entities to court is seemingly reserved for cases where it matters most.

Oversight on oversight

The new unit will join a crowded room of bodies with a mandate to monitor and review different aspects of ASIC’s purview.

Along with regular audits at the Parliamentary Joint Committee’s oversight into ASIC’s effectiveness, Treasury is understood to be planning a review of the industry funding model ASIC uses to bridge the gap between budgets and expenses.

The regulator will also have its effectiveness and capability assessed by the new Financial Regulator Assessment Authority (FRAA), while the Australian Law Reform Commission continues its study of the regulatory architecture ASIC administers.

Lines of communication

The issue of ASIC’s spending habits came up in an exchange to open a PJC hearing into ASIC’s effectiveness on Friday morning, where liberal MP Bert van Manen accused the regulator of not raising awareness within government that the funding model is flawed.

“You haven’t recognised there’s an issue, or if you have recognised there’s an issue you haven’t proactively as an organisation gone back to government and said ‘I think we need to look at this and maybe change this’,” van Manen said.

“That’s not correct,’ replied ASIC head of operations Warren Day. “We have an ongoing dialogue with the government about the nature of the industry funding model… and that is an ongoing conversation we’ve had since the imposition of the model.”

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