Why ASIC can’t get its funding from the big end of town

MP Bert van Manen questioned why the cost of ASIC’s actions – which it says are primarily targeted at the big end of town – are borne by smaller financial advice practices through the industry funding levy, and whether the regulator could shift its cost recovery efforts to the large institutions.

But ASIC commissioner Danielle Press said that the timeline of enforcement actions against those institutions made it difficult to recover costs ahead of time.

“There is a delay in (cost recovery), because the litigation costs are incurred today – they’re not recovered until the litigation is successful, which is two to three years’ time. There is a challenge in the advice sector today which I feel is very specific – a lot of it is about the model itself, which is out of our control,” Ms Press said.

ASIC chair James Shipton said that ASIC was “very focused” on the issue and wanted to work with the financial advice industry to reduce some of the costs, and was also open to receipt of applications for financial hardship.

“There is a horrible lag. When we recover from the big end of town, the small end of town doesn’t see that coming off their bill for a couple of years,” said ASIC deputy chair Karen Chester.

The industry funding levy has increased from $276 million for 2018-19 to $320 million in 2019-20 – the “lion’s share” of which has come from costs associated with the Hayne royal commission. But ASIC believes that financial advisers will see a fee reduction as it finishes enforcing cases from the royal commission.

“[The levy] should come down because the misconduct legacy is being removed from the system, and going forward we want to see it reduced by what we’re trying to do – we don’t have the policy levers, but we certainly have the levers of what the cost of our enforcement action,” Ms Chester said.

ASIC also said that it had received 469 submissions to its consultation paper on access to affordable advice, with 244 of those being from financial advisers.

“A lot of the issues raised were ones we’d heard already, but it’s terrific to have them in one place and to now be able to address them,” Ms Press said.

“We did give the industry associations a high-level briefing of what we found in the consultation and some of the things we’re considering and hoping they can give us feedback on what would be helpful. We’ve also provided that high-level briefing to Treasury."