FAAA highlights ASIC levy concerns in parliamentary inquiry

Addressing a parliamentary inquiry into the Australian Securities and Investments Commission (ASIC) on Wednesday, Sarah Abood, the chief executive officer of the Financial Advice Association Australia (FAAA), brought up concerns regarding the ASIC levy and the corporate regulator's lack of transparency.

“We think our members may be paying for expenditure that shouldn’t be attributed to them. However, we have no visibility of how ASIC attributes its enforcement costs,” Ms Abood said.

“Very little information is provided to the regulated population on how its money is being spent.”

Ms Abood said “more transparency” would allow for any errors to be picked up, ensuring costs are being shared fairly.

“As I understand it, ASIC attributes enforcement costs first to the sector that it feels was attributable for the enforcement and I think that number was $18 million, and then based on the enforcement cost, it then attributes its fixed costs and its operating costs to sectors in the same proportion.

“So, we think that’s the reason why the cost for our sector has escalated so rapidly. That those enforcement costs may possibly have been attributed to our sector incorrectly.”

In its latest Cost Recovery Implementation Statement (CRIS), published in June, ASIC confirmed that to cover the cost of regulating licensees that provide personal advice to retail clients, which stood at an estimated $55.5 million in 2022–23, advisers will pay a minimum levy of $1,500 plus $3,217 per adviser.

Under the former government’s ASIC levy freeze, the costs charged to the sector amounted to $22.8 million. This meant that at the time, advisers were charged a minimum levy of $1,500, plus $1,142 per adviser.

Ms Abood earlier highlighted the issue of a “complete lack of clarity or transparency” regarding the allocation of proceeds from ASIC’s enforcement activities.

“ASIC has estimated expenditure of $18.2 million in 2022–23 on enforcement activity in our sector, yet recoveries are only $2.1 million. 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,” said Ms Abood in late June.

“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.”

At the time, Ms Abood also stressed that 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.”

The government has yet to respond to the issues raised by the FAAA.