Without action, the Australian Securities and Investments Commission (ASIC) levies on the personal financial advice sub-sector would have increased from $25.6 million in 2017-18 to an estimated $71.4 million in 2020-21 – a 179% increase, according to the Government.
Data from the Government showed this would’ve been the largest increase in dollar terms faced by any sub-sector.
The per adviser levy would have increased by 236% from $934 in 2017-18 to an estimated $3,138 and potentially higher if adviser numbers were lower than ASIC estimated in the cost recovery implementation statement (CRIS) in 2020-21.
The Government announced a reduction in the ASIC levy which would return to the FY19 level of $1,142 per adviser for the next two years (FY21 and FY22).
“The Government sets ASIC’s funding and requires that the cost of ASIC’s regulatory costs be recovered from industry through the Industry Funding Model (IFM), which has been in place since 1 July, 2017,” a Government spokesperson said.
“Under the IFM, all of ASIC’s regulatory costs are recovered from industry via levies (around 90% of regulatory costs) and fees-for-service (around 10% of regulatory costs).”
Levies were charged to 51 industry sub-sectors, and costs were recovered in proportion to the costs incurred by ASIC in regulating each sub-sector.
Costs recovered from the IFM had been $236.6 million in 2017-18, $276.7 million in 2018-19, $320.3 million in 2019-20 and an estimated $359.6 million in 2020-21.
“Absolute cost increases had been driven by additional funding being provided to ASIC by Government to implement the recommendations of the Financial Services Royal Commission ($404.8 million over four years from 2019-20 to 2022-23, with around $112 million ongoing funding), many of which related to the regulation of financial advisers,” the Government said.
“This increased funding has largely translated to increased spending on supervision and enforcement activity to date.
“ASIC has adopted a more intensive supervisory and enforcement approach in response to the Royal Commission and legislated regulatory reforms, with direct (supervision, surveillance and enforcement) costs and indirect costs (IT support, operations support, and property and corporate services) making up approximately 87% of the increases in ASIC’s costs relating to the personal financial advice sub-sector over the period from 2017-18 to 2020-21.”
The costs of large enforcement actions against the major banks and AMP were still flowing through the system and with the banks having largely exited the sector, it was the remainder licensees and advisers that were financing the regulatory system.
“For example, 60% of the cost of enforcement action against Westpac last year for its previous actions within financial advice was charged to the personal financial advice sub-sector, with just 40% charged to the superannuation trustees sub-sector,” the Government said.
“This was despite the fact that Westpac has entirely exited the advice industry – this situation occurred as a result of the lag between when litigation is undertaken and when it is cost recovered.”
