Enforcement costs should be removed from ASIC levy

The Association of Financial Advisers (AFA) has called for the costs of enforcement, and investigation and action against unlicensed operators, to be permanently removed from the corporate watchdog’s levy.

In its submission to the Australian Securities and Investments Commission’s (ASIC’s) levy, the AFA said the ASIC funding levy was stratospheric, unjustified, and unsustainable which created an untenable station that had hugely negative effect on the advice procession and the clients it served.

“In the interests of fairness and good regulation, the AFA asks that the cost of enforcement (including related indirect costs), along with the cost of investigation and action against unlicensed operators, is permanently removed from the ASIC funding levy, effective from the 2020/21 financial year,” the AFA said.

“Financial advisers should also still benefit from any cost recovery and penalties arising, related to the costs already incurred in 2018/19 and 2019/20, but should not be required to continue to fund this litigation in future years.

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“If the Government chooses to continue with this approach, in the face of industry and adviser concerns, and financial advisers are expected to fund litigation against large institutions, then any penalties should flow back into the financial adviser ASIC funding levy pool, including those penalties that have already been applied. Further, if financial advisers are expected to fund Government litigation against large institutions, then they should receive adequate disclosure and reporting on the outcome for the contribution that they are being forced to undertake.”

The AFA noted the levy had become deeply flawed, inequitable and unfair as:

• Financial advisers were funding investigations and litigation against institutions. When matters succeeded penalties were paid into consolidated revenue and the ultimate beneficiary was the Government;
• Should ASIC win the matter in court, they may recover costs, which will offset the funding levy, however the AFA said it had been advised that this could be only two thirds of the costs incurred in a particular matter;
• Any cost recovery was likely to be deferred for a number of years;
• Most of the actions that arose as a result of the Royal Commission were with respect to large institutions and not individual advisers;
• The big four banks had almost entirely left financial advice;
• Financial advisers were required to pay for investigation work and litigation against unlicensed operators, including some recent high-profile cases. Where people operate outside the law, in many cases to avoid the additional costs of operating in a compliant manner, it was not reasonable for those who are doing the right thing to pay for those who are not; and
• ASIC took Westpac to court over what it believed was about personal advice despite the bank never setting out to provide personal advice. Nonetheless, ASIC charged 60% of the cost to small business advisers.

The AFA also said ASIC based its expected levy of $3,138 per advisers on a total of 21,308 advisers and given the number of advisers was close to 19,000, the levy would likely be closer to $3,450 for 2020/21.

Also, AFA said the cost recovery implementation statement (CRIS) had been published later and later each year.

“In 2019 it was issued in March. In 2020 it was issued in early June, and now in 2021 it has been issued in late July after the year has concluded. This seems contrary to the original intent which we understood was to provide an indication of what was likely to be the case during the year,” it said.

“We understand that ASIC was exposed in 2020 by issuing the CRIS in June, but then needing to issue a revised levy six months later based upon an additional $16 million in expenditure. The fact that the CRIS could be released only a few weeks before the end of the financial year, and end up being so wrong, raised concerns that decisions were made late in the process about which costs to allocate to financial advisers.

“These issues, and the delay in releasing the CRIS, only contribute to a reduced level of trust and confidence in the process.”