ASIC chair Joe Longo

Despite setting up an internal unit to watch over operational costs and a looming review into the industry funding model, the cost to regulate the financial advice industry looks set to rise dramatically according to ASIC’s 2020-21 Cost Recovery Implementation Statement, which detailed an estimated $15.2 million increase year-on-year.

The cost to regulate retail personal advisers will be $71.4 million for 2020-21, ASIC says, a stark rise from the $56.2 million cost in 2019-20.

The bulk of these costs are forecast to come from ASIC’s enforcement activities, with a combined bill of over $31 million. Supervision and surveillance ($8.5M), and indirect costs such as governance ($7.8M), IT support ($5.1M) and ‘property and corporate services’ ($7.9M) will also stretch the bill.

Fortunately for advisers, the industry will not be asked to fund the increased cost. In August this year Treasurer Josh Frydenberg and the minister for superannuation, financial services and the digital economy Jane Hume announced that the variable ‘graduated’ component of the levy would be capped at the 2018-19 level of $1,142 per adviser for 2020-21 and 2021-22, meaning there is only a partial recovery cost for advisers.

Levy freeze

Frydenberg said the “temporary and targeted” levy relief would help temper the effects of the pandemic and the disruption caused by the Hayne royal commission.

The relief will save advisers around $4,000 each over the next two years, the Treasurer estimated, for a total of $90 million. The 2018-19 level graduated component of $1,142 is far beow the $3,138 component ASIC originally estimated for this year, but still above the original $934 graduated component charged in 2017-18.

Frydenberg warned, however, that further disruption – and cost – was around the corner.

“The freeze in the per adviser levy will provide financial advisers with the certainty they need over the next two years to deal with the impacts of COVID-19 and further regulatory reforms making their way through the parliament, including the introduction of a Single Disciplinary Body and a Compensation Scheme of Last Resort,” he said.

The CSLR, in particular, has the potential to be a major cost incursion for advisers, with providers, industry representatives and associations currently lobbying government to widen the scope of contributers to the scheme to lessen the burden.

An eye on cost

Both the government and ASIC have an eye on the cost of regulation after the regulator’s infamous ‘why not litigate‘ mantra combined with the events of the Hayne royal commission to rapidly increase the expense of advice oversight.

ASIC has now abandoned the mantra, which saw it embark on a plethora of legal proceedings, in favour of a more accomodative and supportive stance to help the finanical services system and associated businesses recover from the pandemic.

Both policymaker and regulators are also acutely aware of the sharpe decline in adviser numbers at a time when more Australians are in need of financial guidance in the wake of the pandmeic.

The industry funding model itself is up for review, with Treasury set to reassess whether it remains fit for purpose. After five years in operation its design has been criticised for a delayed cost-tagging system that slugs current industry participants with the outsized expense of pursuing advisers that have already left the industry by the time the levies are charged.

Leading indsutry associations applauded the review’s announcement, with Finanical Planning Association chief executive Dante De Gori calling it a “critical piece of the puzzle in making financial advice more affordable”.

The regulator said it will funnel feedback on the industry funding model – in particular the annual adviser levy – directly to Treasury in anticipation of its upcoming review of the funding model.

ASIC chair Joe Longo also announced in its August corporate plan that it will set up its own internal unit to monitor how it operates, “with a focus on minimising regulatory costs for businesses”.

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