Those financial planning firms who have already received their invoices from the Australian Securities and Investments Commission (ASIC) for the 2019-20 supervisory levy should know that, no matter how loudly they complain, there is no avoiding the reality of the near 60% increase it contains.
However, the Association of Financial Advisers (AFA) was right to suggest to its members that they should, nonetheless, make their feelings known to their local Federal Parliamentarians and, in particular, that they should seek to directly lobby the Treasurer, Josh Frydenberg, because it is the Treasurer who has the power to direct change.
Of course, the die was cast with respect to the ASIC levy well before the Frydenberg became Federal Treasurer. Indeed, the man in charge of the Treasury portfolio when the user-pays regime was introduced in 2017 was the man who is now Prime Minster, Scott Morrison.
What also needs to be remembered was that ASIC’s executive had lobbied for years in favour of a user-pays regime producing arguments highly attractive to a Government keen to substantially remove the direct cost of financial services regulation from the Budget.
Indeed, in 2014, ASIC actually produced a brief for members of Parliament in which it argued its case by suggesting that the “proposed user-pays funding model is not about increasing ASIC’s budget but about providing economic incentives to drive the regulatory outcomes set by Government.
“The cost of using ASIC’s resources has grown significantly out of line with the revenue we collect from the sectors we regulate,” the ASIC brief said. “Recovering the cost of using ASIC’s resources through an outcomes focused user-pays funding model can drive economic efficiencies and:
a) Encourage self-regulation;
b) Limit overuse of ASIC’s resources;
c) Create greater visibility and cost accountability for ASIC;
d) Foster opportunities to better target regulatory outcomes; and
e) Strengthen ASIC’s operational independence.”
While many Parliamentarians would have recognised at the time that user-pays would increase the burden on the industry, some might have been at least partly satisfied by ASIC’s 2014 assurances that it would be working to reduce red tape and the regulatory compliance burden.
A lot has changed since ASIC produced that briefing note including a Royal Commission, a chastened regulator pursuing proactive litigation and the major banks exiting wealth management.
What financial advice firms now know is that whatever formulas ASIC believed in and promoted in 2014 have long since expired the increased cost of regulation, with the exit of the banks, is now being carried by fewer and smaller firms. What is more, all this is happening even before the Government puts in place its single disciplinary body and compensation scheme of last resort.
The message that Frydenberg should be taking on board is that ASIC’s arguments in favour of user-pays were always flawed and that it is time that key elements of financial services regulation were again underwritten by Budget financing.
