FAAA extremely concerned by drastic and unfair increase in estimated ASIC levy

Late on Wednesday 28 June 2023, ASIC released its estimate of the levies that will apply for the 2022/23 financial year. This comes after the Minister, Stephen Jones, confirmed that the ASIC funding levy freeze, which has been in place for the past two financial years, will not be continued.

Ms Abood, CEO of the FAAA, said “The levy freeze for the past two financial years was achieved as a result of strong advocacy on the need for fairness and equity in the way the levy is calculated. This resulted in substantial savings for the financial advice profession in the 2020/21 and 2021/22 years.

“We are extremely concerned to see the impact of the end of the freeze on the ASIC levy resulting in an almost tripling of the per-adviser cost. This comes before the recommendations of the recently-released review into the Industry Funding Model (IFM) for ASIC have been implemented. The review highlighted several deficiencies in the current model, and the need for reform.

“We do acknowledge the Government has accepted some recommendations that should make future charging fairer. These include more fairly sharing the costs of enforcement activity, including against unlicensed participants and emerging sectors, and looking at whether the sub-sector definitions for financial advice activity continue to be appropriate.

“However, there are two major problems here.

“Firstly, it is evident that important recommendations have not been accepted in the IFM review. For example, current financial advisers appear to be being charged for enforcement activities undertaken against past entities that in many cases are no longer even in the profession. This breaches one of the major principles of the IFM, that those who create the need for regulation should bear the primary cost. The moral hazard involved in this is of great concern and a fundamental flaw in the design, that must be rectified. It is unsustainable to have a model in which the good actors in our sector disproportionately bear the costs of the misbehaviour and risk taking of the bad actors, including those who are no longer operating or who are unlicensed.

“Even more concerning is the complete lack of clarity or transparency on what happens to the proceeds of enforcement activities. ASIC has estimated expenditure of $18.2m in 2022/23 on enforcement activity in our sector, yet recoveries are only $2.1m. Financial advisers are funding litigation costs against large institutions, when the fines are going to consolidated revenue, and advisers are left with a tiny fraction of these costs being recovered.

“For example, ASIC was successful in court against Westpac in April 2022, with $113 million in penalties being awarded in this single case (which included advice related matters). What has happened to those penalties? Have they simply gone into consolidated revenue? If that is in fact the case – that financial advisers are funding ASIC action against these participants, and yet the government is keeping all the proceeds – then this breaches really fundamental principles of fairness and equity.

“The second key problem is that even those suggestions in the review that have been accepted are not reflected this year’s Cost Recovery Implementation Statement (CRIS). It’s deeply unfair to proceed to charge advisers using a model that is already acknowledged to need reform.

“When the levy was originally frozen, at $1,142 per adviser, the profession had substantially more participants than it does now. The increase for this financial year, to an estimated $3,217 per adviser, almost triples the costs. Advisers will be forced to pass the cost increase on to consumers at a time when we are all working hard to make financial advice more affordable.

“We call upon the government to urgently reconsider the removal of the freeze in light of the flaws in the model being used to calculate the levy, and the negative impact on Australian consumers who will ultimately bear the costs.”