A little under two years ago, the Wallis inquiry handed down its 700-plus-page stock-take on the financial system. So it’s appropriate to take stock of what has happened since then.
The Wallis recommendations were about increasing efficiency, effectiveness and competitiveness in the financial system, largely by increasing harmonisation and eliminating duplication. The report suggested $4 billion in efficiencies might be achievable. Have these promises been delivered?
The Managed Investment Act has been passed but transition has been slow due to delays in resolving issues of tax and stamp duty. The CLERP 6 reforms on disclosure and licensing have made little legislative progress, though the Government has spent significant time consulting affected parties. New regulators ASIC and APRA are slowly beginning to exercise their new responsibilities.
The only major change at APRA so far has been the introduction of new levies.
And from the industry’s point of view, the jury is still out on this one.
APRA’s prudential regulation will be entirely funded by levies – technically, taxes – charged against the institutions it supervises. The former Insurance and Superannuation Commissioner was required to consult with stakeholders before making regulations determining levies. Unfortunately, that requirement was dropped from the bill that now applies to APRA.
In presenting the levy bills, the Treasurer assured Parliament that the net financial effect on the institutions would be “negligible”, while the Budget Papers said the overall net effect would be “minimal”. Has this scenario prevailed?
Total levies on the industry have in fact risen from $20 million to $30 million, and indications are they are likely to exceed $40 million in the next year. Does this classify as “negligible”?
For some funds, it’s even worse. Take Pooled Superannuation Trusts (PSTs).
The previous regime allowed different levies for different classes of funds or unit trusts. The new arrangements mean the levy for a PST reverts to an asset-based formula. For a large PST this means the levy jumps from $300 to $39,000.
And all the assets held in a PST are already subject to an asset-based levy through the superannuation fund they belong to. Thus the new charging basis allows the taxman to ‘double dip’.
So what is driving these fee rises? Is it:
Organisational inefficiencies?
Staff increases?
Redundancy costs?
Salary increases?
Building and accommodation costs?
In discussions with regulators last year, it emerged that the levy rises were needed to meet APRA/ASIC costs approved in the Budget, while the old levies were insufficient to meet running costs. The view that establishment/transition costs are not a cost of supervision was not accepted.
It’s fair to conclude that the industry consultation process in preparation for establishing the new regulators was unsatisfactory.
Just before the last Federal Election, an Australian Chamber of Commerce and Industry survey identified the business sector’s top ten issues for Government. Complexity of regulations and their cost of compliance featured prominently with all groups surveyed.
Mark Paterson, ACCI chief executive, highlighted this issue:
“…the increasing pursuit of cost recovery by governments has lead to spiralling cost burdens being projected onto business…Yet there has been no attempt to formulate any consistent delineation between public and private interest and little opportunity for the private sector to influence the regulatory arrangements for which it is now being asked to pay for as well as comply with. ACCI…believes it would be appropriate to have an independent Productivity Commission review to clearly set formal criteria for cost recovery in regulatory areas.”
As the Governments move to “user pays”, they must ensure that “users” are not defined narrowly merely because they are a convenient target with deep pockets.
In last year’s levy discussions, the argument that supervision is a public benefit and thus its running costs should be met partly from general revenue was rejected.
Users must be given greater control over the costs imposed on them. Double counting must be avoided – many institutions are paying licence fees to ASIC which are not counted against the levies.
Levy-payers have also complained about other issues. These include the short time to consider the proposals, the lack of explanation for the calculations or the relative charges, and the inclusion of transition costs.
Graeme Thompson, the new CEO of APRA, has indicated there will be better transparency and consultation when setting the levies for 1999/2000. IFSA believes this should include discussion on both the rationale for determining the levies as well as the total costs.
Even if this occurs, will a stock-take on the Wallis savings also be needed soon?
Richard Gilbert is deputy chief executive officer, Investment and Financial Services Association
