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ASIC Supervisory Cost Recovery Levy (Consequential Amendments) Bill 2017

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2016-2017

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

HOUSE OF REPRESENTATIVES

 

ASIC Supervisory Cost Recovery Levy Bill 2017

ASIC supervisory Cost Recovery Levy (Collection) Bill 2017

ASIC Supervisory cost recovery levy (Consequential amendments) Bill 2017

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP)



Table of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1               ASIC Supervisory Cost Recovery Levy............................ 5

Chapter 2               Statement of Compatibility with Human Rights............ 37

Chapter 3               Regulation Impact Statement........................................... 41

 



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ASIC

Australian Securities and Investments Commission

ASIC Act

Australian Securities and Investments Commission Act 2001

Collection Bill

ASIC Supervisory Cost Recovery Levy (Collections) Bill 2017

Inquiry

The Final Report of the Financial System Inquiry

Levy Bill

ASIC Supervisory Cost Recovery Levy Bill 2017

NCCP Act

National Consumers Credit Protection Act 2009

PGPA Act

Public Governance, Performance and Accountability Act 2013



Overview

On 20 April 2016, the Government announced a package of reforms to bolster ASIC and reform the regulation of Australia’s financial services sector in order to deliver better outcomes for consumers.

The reform package included a commitment to introduce an industry funding model for ASIC to commence on 1 July 2017. The proposed industry funding model will include measures to support ASIC becoming a stronger regulator through increased accountability, transparency and engagement with consumers and its regulated entities. In particular the funding model will:

•        Increase accountability - ASIC will annually explain its regulatory priorities, the means by which it intends to address those priorities and the allocation of resources to each regulatory activity. The Government expects that ASIC will develop a communications strategy consistent with the recommendations of the Capability Review that clearly explains to industry and consumers its choice of regulatory tools or pursuit of particular objectives in making regulatory decisions.

•        Create a richer dataset to help ASIC prioritise resources — ASIC will be required to improve its collection and use of data generated by financial entities which will assist with regulation, compliance and prioritisation by developing technological systems that are both agile and adaptable.

Date of effect 1 July 2017

Proposal announced 20 April 2016

Financial impact These bills will improve the underlying cash balance by $308.7 million over the forward estimates.

               

2017-18

2018-19

2019-20

2020-21

Total

Net impact on UCB

-46.0

138.2

102.0

114.5

308.7

Human rights implications :  These bills are compatible with human rights. See Statement of Compatibility with Human Rights— Chapter 2.

Compliance cost impact : An increase of $21.1 million per annum.

Summary of regulation impact statement

Regulation impact on business

Impact An increase of $21.1 million in compliance costs per annum.

Main points :

•        The Government has been informed of the regulatory impacts of the proposed ASIC industry funding model through three stages of consultation so far. Two on the design of the industry funding model itself and one on the exposure draft legislation.

•        The introduction of an industry funding model is anticipated to increase regulatory costs by $21.1 million per annum. However, this is likely to change as refinements are made to the proposed levy mechanisms for each industry subsector. Further, we expect the annual regulatory burden to decline once industry’s data reporting systems are in place and ASIC is able to pre-fill forms based on prior-year returns and other data collection mechanisms. 

•        The increased regulatory burden arises primarily because:

-       around 7,500 entities will have to establish new reporting systems to provide ASIC with additional data; and

-       around 55,000 entities will have to provide additional data to ASIC each year.

•        While this reporting burden has a cost, it will also have significant benefits for regulated entities. The additional data will allow ASIC to:

-       better identify and respond to emerging risks in the financial sector; and

-       apportion its regulatory costs across regulated entities, in line with its regulatory activities, which will  eliminate or significantly minimise cross-subsidisation.



Chapter 1          

ASIC Supervisory Cost Recovery Levy

Outline of chapter

1.1                   The ASIC Supervisory Cost Recovery Levy Bill 2017 (the ‘Levy Bill’) imposes a levy on persons regulated by the Australian Securities and Investments Commission (‘ASIC’) to recover its regulatory costs.

1.2                   The ASIC Supervisory Cost Recovery Levy (Collection) Bill 2017 empowers ASIC to collect the levy and requires entities to submit returns annually so that ASIC is able to calculate the levy.

1.3                   The ASIC Supervisory Cost Recovery Levy (Consequential Amendments) Bill 2017 makes necessary consequential amendments to other Acts.  This includes repealing the existing market supervision and competition cost recovery regime that ASIC’s Industry Funding Model will replace.

Context of amendments

1.4                   On 7 December 2014, the Government released the Final Report of the Financial System Inquiry (‘the Inquiry’).  The Inquiry found that ASIC’s costs are not transparent to regulated industry participants.

1.5                   This lack of transparency raises two issues for how ASIC is funded:

•        industry and consumers have little understanding of the actual costs of ASIC supervision; and

•        ASIC has limited accountability to industry and consumers in the activities it undertakes and why it undertakes them.

1.6                   In response to these issues, the Inquiry recommended the introduction of an industry funding model for ASIC’s regulatory activities, in conjunction with enhanced accountability arrangements for ASIC. In particular, an industry funding model for ASIC would:

•        ensure that the costs of the regulatory activities undertaken by ASIC are borne by those creating the need for regulation, rather than Australian taxpayers;

•        establish price signals to drive economic efficiencies in the way resources are allocated within ASIC; and

•        improve ASIC’s transparency and accountability to industry.

1.7                   Internationally, a number of comparable financial services and markets regulators recover their costs of operation from industry.  As of 2014, 23 foreign financial service and market regulators were industry funded, eight were funded by both Government and industry, and eleven were funded solely by the Government.  Regulators wholly funded by industry include the United Kingdom’s Financial Conduct Authority, the United States’ Securities and Exchange Commission and Germany’s Federal Financial Supervisory Authority.

1.8                   On 28 August 2015, the Government released a consultation paper for a Proposed Industry Funding Model for ASIC.  In response to the consultation paper, the Treasury received 77 submissions, including 15 confidential submissions.  The Treasury also held a number of stakeholder meetings and round tables to refine aspects of the model.

1.9                   Following feedback from stakeholders, the levies for each sector were refined with a number of design objectives in mind:

•        Simplicity - The model should be simple to enable any firm to calculate its applicable levy.

•        Certainty - The levies should, wherever possible, provide enough certainty for entities to allow them to incorporate the levies into commercial decisions.

•        Proportionality - Levies from each sector should be calculated from readily available metrics of business activity, such as revenue generated or funds under management.  Selection of each sector’s activity metric should: align to expected regulatory oversight, including the level of anticipated consumer or investor exposure; and ensure that the reporting burden for industry is kept to a minimum.

•        Commercially-based - Sector definitions should group together entities that are providing similar services, and compete in the same market.

•        Efficient processing - Billing and business activity collection should be done through a web portal that users find simple, clear and fast to use, and that is seamlessly connected to ASIC databases.

1.10               In addition to these design principles, the Government has developed the Industry Funding Model in accordance with the Australian Government Charging Framework and the Cost Recovery Guidelines.  These provide that where an individual organisation creates the demand for a government activity they should generally be charged for it unless the Government has decided to fund the activity. The Charging Framework requires that there is an alignment between the expenses of the regulatory activity and the revenue generated through the charges. Wherever possible there must not be systematic over or under recovery of costs over time.

1.11               The characteristics of a government activity determine the type of charge to be used.  Where a service is provided to a group of individuals or organisations, rather than to a specific individual or organisation, the charge is more appropriately framed as a general industry levy.

1.12               On 20 April 2016, the Government announced that it would introduce an industry funding model for ASIC, commencing on 1 July 2017. This would use a combination of fees and levies, where appropriate.

1.13               On 7 November 2016, the Government released a proposals paper on the Proposed Industry Funding Model for the Australian Securities and Investments Commission.  This paper contained a detailed model that was developed with the benefit of broader consultation during 2015.  Elements from industry funding models in Australia and overseas were incorporated into the design, where appropriate.

1.14               In response to this paper, Treasury received 231 submissions, of which 52 were confidential. Treasury also held extensive consultation and conducted roundtables with various stakeholder groups.

1.15               Exposure draft legislation was prepared based on this feedback, and was released for public comment on 22 February 2017.A total of 19 submissions were received.

1.16               In pursuance of the Corporations Agreement 2002 , the States and Territories agreed to shorten the public consultation that would otherwise be required for amendments to the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 (‘ASIC Act’).

Summary of New Law

1.17               Entities that are regulated by ASIC will be required to pay a levy that will recover ASIC’s regulatory costs for a financial year from entities that were regulated in that financial year. The levy will be calculated and will become payable in the following financial year, once ASIC has issued the leviable entity with a notice setting out their liability for the levy.

1.18               The objectives of the model are that the total levy paid by all leviable entities should not exceed ASIC’s total regulatory costs for a particular financial year. The regulations will provide methods and formulas for how ASIC’s regulatory costs are to be apportioned across the various sectors and sub-sectors that it regulates.

1.19               Leviable entities may be required to give a return to ASIC that includes information that will be used to calculate the levy. Where ASIC does not require entities to provide information to calculate the levy, then those entities will not have to provide a return. Following this, ASIC will issue a legislative instrument that will set out what its regulatory costs were in relation to the financial year, as well as information on how those costs are apportioned across leviable entities.

1.20               After the levy amounts have been determined for a financial year, ASIC will issue notices to entities setting out the amount of levy and when it will be due and payable. Failure to pay the levy by this date will attract a late payment penalty at the rate of 20 per cent per annum, unless ASIC has granted the entity an extension.

1.21               If a person fails to give a return to ASIC, or ASIC is not satisfied with the information provided to calculate the levy, then the leviable entity may be given a default notice for the amount that, in ASIC’s opinion, is the levy payable by the person. A person that fails to give a return will also be liable under a strict liability criminal offence.

1.22               Where a person has made a false or misleading statement to ASIC in a return and that statement results in them paying a lesser amount than if the statement was not false or misleading, they will be liable for a shortfall penalty of twice the amount of the shortfall.

1.23               Where a person has given information to ASIC and that information is used to calculate their levy, ASIC may give the person a notice requiring them to substantiate that information. Failure to comply with this notice is a strict liability criminal offence.

 

1.24               Where a levy, shortfall penalty, or late payment penalty remains unpaid for a period of 12 months, a range of administrative actions may be taken against the person, including deregistration, licence suspension or cancellation, as is appropriate in the case.

1.25               ASIC will be required to publish their regulatory costs in relation to each entity type that is required to pay the levy.

1.26               The first year that the Government will recover ASIC’s regulatory costs from its regulated population will be the 2017-18 financial year, which commences on 1 July 2017.

Detailed Explanation of New Law

Commencement, application and machinery provisions

1.27               The Levy Bill will commence with effect on 1 July 2017. The Collection Bill and Consequential Amendments Bill have commencements linked to the commencement of the Levy Bill to ensure that all aspects of the regime start on the same day.  If the Levy Bill does not commence, then the other Bills do not commence.   [Levy Bill section 2; Collection Bill section 2; Consequential Amendments Bill section 2]

1.28               The Collection Bill and Levy Bill bind the Crown in right of each of the States, of the Australian Capital Territory, of the Northern Territory and of Norfolk Island. However, they do not bind the Crown in right of the Commonwealth. This means that certain leviable entities that are considered to be the Commonwealth, such as a ‘Commonwealth entity’ (within the meaning of the Public Governance, Performance and Accountability Act 2013 (the ‘PGPA Act’)), cannot be made liable to levy even where it would otherwise apply to them. Certain other leviable entities that are not considered to be the Commonwealth may, however, be liable to levy, such as a Commonwealth company (within the meaning of the PGPA Act). [Levy Bill section 3; Collection Bill subsection 4(1)]

1.29               The Collection Bill further provides that it does not make the Crown liable to a pecuniary penalty or to be prosecuted for an offence under this regime. [Collection Bill subsection 4(2)]

1.30               The Collection Bill and Levy Bill extend to acts, omissions, matters and things outside Australia.  They also extend to every external Territory. [Levy Bill sections 4 and 5; Collection Bill sections 5 and 6]

1.31               The Levy Bill does not impose a tax on property of any kind belonging to a State within the meaning of section 114 of the Constitution. [Levy Bill section 6]

1.32               The Collection Bill also contains a simplified outline to assist readers in understanding the substantive provisions.  However, the outline is not intended to be a comprehensive explanation of the substantive provisions, so readers should instead rely on the substantive provisions. [Collection Bill section 3]

Imposition of Levy

1.33               The Levy Bill will impose levy on entities that are regulated by ASIC. Section 8 of the Levy Bill, which imposes liability to levy, operates in conjunction with section 8 of the Collection Bill, which makes the levy payable by a leviable entity. [Levy Bill section 8; Collection Bill section 8]

1.34               Section 9 of the Collection Bill provides that a person who is a leviable entity for a financial year that ends after the commencement of the ASIC Supervisory Cost Recovery Levy Act 2017 , is liable to pay levy for that financial year.  The Bills are scheduled to commence on 1 July 2017, so leviable entities for the 2017-18 financial year will be liable to pay levy for that financial year.  This will recover ASIC’s costs for the 2017-18 financial year. [Levy Bill section 8, Collection Bill, section 9]

1.35               The term leviable entity is used to draw a connection between a regulated entity and the financial year that is being cost recovered that the entity will ultimately be levied for. Leviable entity means a person who is a regulated entity at any time in the financial year, and is not an exempt entity for that financial year. A regulated entity is defined to mean a number of entity types that are regulated under various Acts that ASIC administers. These two definitions work in conjunction to recover ASIC’s costs for the financial year from persons that were actually regulated in that year. An exempt entity is one that is prescribed by the regulations for a financial year.  [Levy Bill section 7, definition of ‘leviable entity’, definition of ‘regulated entity’ and definition of ‘exempt entity’; Collection Bill section 7 definition of ‘leviable entity’]

1.36               The definitions that make up the definition of a regulated entity include:

•        a company that is registered under the Corporations Act 2001 ; or

•        a financial services entity; or

•        a credit services entity; or

•        a market infrastructure entity; or

•        an audit entity; or

•        a liquidator entity; or

•        a company-like entity; or

•        a person regulated by ASIC who is in a class of persons prescribed by the regulations.

[Levy Bill section 7, definition of ‘regulated entity’]

1.37               The definition of regulated entity provides that a person regulated by ASIC who is in a class of persons prescribed by the regulations is a regulated entity. Each of the entity type definitions are set out in the Levy Bill. The Levy Bill also includes a power to prescribe a class of persons as falling within a definition. Where a new class of persons is prescribed under any of those sub-definitions, they automatically become part of the definition of regulated entity. [Levy Bill section 7, definition of ‘regulated entity’, definition of ‘financial services entity’, definition of ‘credit services entity’, definition of ‘market infrastructure entity’, definition of ‘audit entity’, definition of ‘liquidator entity’ and definition of ‘company-like entity’]

1.38               Classes of persons who ASIC does not regulate cannot be prescribed by the regulations.

Entity types liable to pay levy

1.39               The definitions of a ‘regulated entity’ group similar entity types that ASIC regulates together. Different rates of levy or levy amounts may be payable for entities within each of these groupings, as the regulations allow rates to be specified for different classes of leviable entities, different sectors or different sub-sectors. [Levy Bill section 7, definition of ‘regulated entity’, definition of ‘sector’ and definition of ‘sub-sector’]

1.40               The entity types that make up the definition of ‘regulated entity’ include classes of persons who have been granted an exemption from various licensing provisions under Acts administered by ASIC. These entities are included in the regulated population because ASIC may still incur some regulatory costs in relation to those entities, because they are part of the Australian market place. For example, a foreign financial service provider may operate in Australia with an exemption from the requirement to hold an Australian financial services licence, but ASIC still incurs regulatory costs in relation to their operations. However, where entities are not required to notify ASIC that they are exempt from the requirements to hold a licence, and therefore ASIC does not incur regulatory costs in relation to their supervision, they are excluded from the relevant definitions and are not subject to the levy. [Levy Bill section 7, definition of ‘financial services entity’, definition of ‘credit services entity’ and definition of ‘market infrastructure entity’]

1.41               The Levy Bill also makes persons that were required to hold various licences, but did not hold those licences, a regulated entity for the financial year. This is achieved by imposing a levy on persons that contravene certain licensing provisions. These persons are included because ASIC still incurs regulatory costs in relation to these persons, and also to support the integrity of the funding model. [Levy Bill section 7, definition of ‘financial services entity’, definition of ‘credit services entity’, definition of ‘market infrastructure entity’]

1.42               Because some of the entity types that make up the definition of a regulated entity are not legal persons, section 12 of the Levy Bill extends the meaning of person so that the levy is imposed on those leviable entities as if they were a legal person. The levy is, however, applied with certain modifications so that it applies similarly to how it would if those leviable entities were legal persons. This is achieved by imposing the liability on each member of the various collectives that are treated as a legal person, but allowing the obligation to pay the levy to be discharged by any natural person member of the collective on behalf of all of them. The Levy Bill imposes levy on the following persons that are part of a collective:

•        each partner in a partnership;

•        each member in an unincorporated association;

•        each trustee that is part of a group of individual trustees that hold an RSE licence;

•        multiple natural person trustees of a trust, treated as a single ‘notional entity’ for the purposes of the Levy Bill.

[Levy Bill section 7 definition of ‘person’, subsections 12(1), 12(2), 12(3)]

1.43               In the case of a partner, member, or trustee that is part of a group of individual trustees that holds an RSE licence, the levy is imposed on each partner, member or trustee. However, the obligation may be discharged by any of the partners, members or trustees on behalf of all of them. [Levy Bill subsections 12(1), 12(2), 12(3)]

1.44               The treatment of a ‘notional entity’ is different to the treatment of the other three cases because the notional entity may only exist for a period of time. Under the Corporations Act 2001 and the National Consumer Credit Protection Act 2009 (‘NCCP Act’) a reference to a person can include a reference to where there are multiple trustees of a trust for a period of time. During the period where there are multiple trustees, the Levy Bill treats the multiple trustees as a ‘notional entity’ for the purpose of imposing the levy, and imposes the levy on each of those trustees separately. Any of the trustees may discharge the liability on behalf of the other trustees.  However, if during the period, or a part of the period, the trust has only one trustee, an obligation that would otherwise be imposed on the notional entity is imposed on that single trustee. This means that where there ceases to be multiple trustees of the trust, the obligation does not remain on the persons that cease to be trustees. [Levy Bill subsections 12(4), 12(5), 12(6), 12(7)]

1.45               A ‘financial services entity’ means an Australian financial services licensee (within the meaning of the Corporations Act 2001 ), an RSE licensee, a person who contravenes subsection 911A(1) (about the requirement to hold an Australian financial services licence), or persons who are exempt from the requirement to hold a financial services licence.  This includes persons that are exempt from the requirement to hold a licence under:

•        a paragraphs in section 911A(2); or

•        an exemption granted by ASIC (under paragraph 926A(2)(a)); or

•        an exemption granted under regulations made for the purpose of paragraph 926B(1)(a).

[Levy Bill section 7, definition of ‘financial services entity’]

1.46               A ‘credit services entity’ includes a credit services licensee within the meaning of the NCCP Act, a person who contravenes section 29 of that Act (about the requirement to hold a credit licence), or a person who is exempt from section 29 under certain provisions of that Act.  Those provisions include:

•        paragraph 109(1)(a); and

•        paragraph 109(3)(a); and

•        paragraph 110(a).

[Levy Bill section 7, definition of ‘credit services entity’]

1.47               An ‘audit entity’ means a range of different entities under the Corporations Act 2001 , including:

•        a registered company auditor (within the meaning of the Corporations Act 2001 ); or

•        a partnership or unincorporated association that is an audit firm (within the meaning of the Corporations Act 2001 ); or

•        an audit company (within the meaning of the Corporations Act 2001 ); or

•        an authorised audit company (within the meaning of the Corporations Act 2001 ); or

•        an individual auditor (within the meaning of the Corporations Act 2001) .

[Levy Bill section 7, definition of ‘audit entity’]

1.48               A ‘company-like entity’ means a range of persons that are regulated under the Corporations Act 2001 , including:

•        a Part 5.1 body; or

•        a Part 5.7 body; or

•        a body (other than a company) that is a disclosing entity under subsection 111AC(1) of the Corporations Act 2001 .

It is necessary to include each of these bodies in the Levy Bill as they include persons other than companies, such as partnerships or unincorporated associations, that would not otherwise have levy imposed on them. [Levy Bill section 7, definition of ‘company-like entity’]

1.49               A ‘liquidator entity’ means a range of entities that are regulated under the Corporations Act 2001 , including:

•        a registered liquidator (within the meaning of the Corporations Act 2001 ); or

•        a person registered as a liquidator of a company under subsection 1282(3) of the Corporations Act 2001 .

[Levy Bill subsection 7, definition of ‘liquidator entity’]

1.50               A ‘market infrastructure entity’ includes a range of persons within the meaning of Chapter 7 of the Corporations Act 2001 , including those that are required to hold various types of licences, are exempt from the requirement to hold those licences under various provisions, or have contravened the obligation to hold a licence.  This includes:

•        a market licensee (within the meaning of Chapter 7 of the Corporations Act 2001 ); or

•        a person who operates a financial market that is exempt under section 791C from the operation of Part 7.2 of the Corporations Act 2001 ; or

•        a person who is exempt under paragraph 907D(2)(a) of the Corporations Act 2001 from the operation of section 905A of that Act; or

•        a participant in a licenced market for the purposes of Chapter 7 of the Corporations Act 2001 ; or

•        a person who would be a participant if the definition of participant in section 761A of that Act covered a person who is allowed to indirectly participate in the facility or market concerned.  This expanded meaning of the term participant ensures that persons such as ‘shadow brokers’ who indirectly participate are liable to levy; or

•        a CS facility licensee (within the meaning of Chapter 7 of the Corporations Act 2001 ); or

•        a person who operates a clearing and settlement facility that is exempt under section 820C from the operation of Part 7.3 of the Corporations Act 2001 ; or

•        a derivative trade repository licensee (within the meaning of Chapter 7 of the Corporations Act 2001 ); or

•        a person who contravenes section 791A of the Corporations Act 2001 (which is about the requirement to hold a market licence); or

•        a person who contravenes section 820A of the Corporations Act 2001 (which is about the requirement to hold a Australian CS facility licence); or

•        a person who contravenes section 905A of the Corporations Act 2001 (which is about the requirement for certain derivative trade repositories to be licenced).

[Levy Bill subsection 7, definition of ‘market infrastructure entity’]

Amount of levy

1.51               The amounts payable each year are set through a combination of regulations and legislative instruments. The regulations will set out the methods or formulas that will be used to apportion ASIC’s regulatory costs. The annual legislative instrument will set out certain information that will be input into the methods or formulas.

1.52               The amount of levy payable by a leviable entity for a financial year is the amount worked out in accordance with the regulations. If there is an inconsistency between the regulations and the legislative instrument, because the amount is worked out in accordance with the regulations, the requirements under the regulations will prevail. [Levy Bill subsection 9(1), paragraph 9(5)(a), paragraph 9(5)(c)]

1.53               The power to set formulas or methods for determining amounts is broad and allows for significant flexibility in determining amounts of levy for different classes of entities. This flexibility is required because of the number of different proposed subsectors and the need to set different methods, formulas or amounts that are appropriate for each of them. [Levy Bill paragraphs 9(5)(a), 9(5)(b), 9(5)(c)]

1.54               The methods or formulas may also be set by reference to matters in existence prior to the commencement of the regulations, or the Act, or both. This includes any amendment regulations if the formulas or methods are required to change over time. [Levy Bill paragraph 9(5)(d)]

1.55               The regulations are made by the Governor-General, whereas the legislative instrument is made by ASIC. The instrument is made by ASIC because the matters that will be included in the instrument are peculiarly within ASIC’s knowledge, such as their regulatory costs and aggregated sub-sector information and this data should not be shared. The regulations will set out the methods or formulas for determining what regulatory costs may be recovered, and what may be used to apportion those regulatory costs, so it is more appropriate that they are made by the Governor-General. [Levy Bill subsection 9(4), subsection 9(5) and subsection 9(6)]

1.56               In setting the formulas or methods, the Minister that is responsible for administering section 9 of the Levy Bill must be satisfied that the regulations are consistent with the objectives set out in subsection 9(2).  These objectives are:

•        that the total amount of levy payable by all leviable entities in relation to a financial year equals the amount of ASIC’s regulatory costs for the financial year; and

•        that the total amount of levy payable by all leviable entities in a particular class, sector or sub-sector in a financial year equals the amount of ASIC’s regulatory costs relating to that class, sector or sub-sector for that financial year.

[Levy Bill subsection 9(2)]

1.57               The rationale behind these objectives is that the Government should not be able to recover more than ASIC’s regulatory costs and that there should not be cross-subsidisation between different classes of persons regulated by ASIC. Accordingly, regulatory costs that do not relate to a particular sector or subsector should not be recovered from that sector or subsector. [Levy Bill subsection 9(2)]

1.58               The Minister, as the rule-maker, must be satisfied that the regulations are consistent with these objectives as a pre-condition to the Governor-General making the regulations. [Levy Bill subsection 9(4)]

1.59               Similarly, ASIC must be satisfied, having regard to information that is used to calculate the levy, that the legislative instrument will be consistent with these objectives. [Levy Bill subsection 9(7)]

1.60               The calculation of all amounts of levy payable is taken to include any amounts that have been waived under section 15 of the Collection Bill. This is to ensure the integrity of the calculations of the levy. To the extent that ASIC has waived any amounts payable, these amounts are not considered a shortfall of collected levy that may be recovered in later years.   [Levy Bill subsection 9(3), paragraph 10(6)(b) Collection Bill section 15] .

1.61               Nothing in the objectives restricts ASIC’s ability to allocate its resources to particular business areas that regulate sectors or subsectors, and then recover its regulatory costs from those sectors or subsectors. It is not, however, within the objectives to recover regulatory costs from entities that did not drive the cost of that regulation. Through allocating its resources to different business areas, ASIC does not have a discretion in allocating the amounts of levy that are to be recovered from each sub-sector. [Levy Bill subsections 9(2) and 10(2)]

1.62               The regulations may specify different formulas and methods for different classes of leviable entities, sectors or sub-sectors. The sectors or sub-sectors will be defined in the regulations. If an amount of levy was set for entities that form part of a sub-sector, each entity that formed part of that sub-sector would have to pay that amount, in accordance with the Collection Bill. There is no restriction on the regulations’ ability to specify that an entity may be able to form part of more than one subsector. An entity’s total amount of levy payable will be the result of all the subsectors that it was part of for that year. [Levy Bill section 7 definition of ‘sector’, definition of ‘sub-sector’, paragraph 9(5)(b)]

1.63               The methods or formulas that are specified may refer to acts done, or circumstances existing, before either the commencement of the Act or regulations, or both. This is necessary as some of the costs that may be recovered were incurred prior to the commencement of these bills. For example, the previous capital expenditure that is currently being recovered under the Market Supervisory Cost Recovery regime (see paragraph 1.79 for more details). [Levy Bill paragraph 9(5)(d)]

1.64               Because of the diversity of persons and activities that ASIC regulates, and how this can change over time, there is a need to have a degree of flexibility in the methodologies that are used to apportion ASIC’s regulatory costs, so that they can change when circumstances change, whilst remaining consistent with the objectives of the model. In the proposals paper released in November 2016 it was suggested that over 40 different methods for apportioning ASIC’s regulatory costs would be required, and each of these may periodically need to be updated or amended as circumstances change. The legislative model provides this flexibility by having the methods for determining the amounts of levy set in the regulations, rather than in the primary legislation.  [Levy Bill subsections 9(1), 9(2), 9(3), 9(4), 9(5)]

1.65               The annual legislative instrument that ASIC issues will only be used to specify limited matters, including:

•        amounts to be used for that financial year in a method or methods specified in the regulations, or

•        the number of leviable entities in a particular class, sector or subsector in that financial year.

[Levy Bill subsection 9(6)]

1.66               This information is peculiarly within the knowledge of ASIC, so it is appropriate that they are able to specify this information in a legislative instrument. [Levy Bill subsection 9(6)]

1.67               It is also appropriate that the power to create the legislative instrument is set out in the regulations, rather than the primary legislation.  This is because the specific matters that will be used to apportion liability will be included in the regulations. If the power to issue instruments was under a provision of the primary legislation then it could only be framed generally (to cover a range of matters), rather than specifically (to cover the actual matters that will be used to apportion the levy).  This is reflected in how the legislative instrument will only be able to specify the matters permitted under subsection 9(6). [Levy Bill subsection 9(6)]

1.68               The annual legislative instrument can only be made after the last day on which returns must be provided to ASIC. This is to ensure that ASIC has regard to the information in those returns when issuing the legislative instrument. [Levy Bill subsection 9(8)]

1.69               Subsection 12(2) of the Legislation Act 2003 , which deals with the retrospective application of legislative instruments , does not apply to regulations made for the purpose of determining the amount of levy payable by a leviable entity for a financial year, or a legislative instrument made by ASIC mentioned in subsection 9(6). [Levy Bill subsection 9(9)]

1.70               It is necessary that these instruments are allowed to have retrospective application because their contents will necessarily be based on matters that occurred in the financial years prior to their commencement dates. This is because the cost-recovery model sets and apportions liability for entities after the relevant financial year in which the costs were incurred.

ASIC’s regulatory costs

1.71               Each year, ASIC must make a determination via a legislative instrument that specifics its regulatory costs for a financial year and identifies how its costs are apportioned across its regulated population. [Levy Bill subsection 10(2)]

1.72               ASIC’s financial costs for a particular financial year will include all costs that are included as part of the determination made by ASIC under subsection 10(2) for that financial year. This amount cannot exceed the total of all amounts appropriated for ASIC for that financial year [Levy Bill subsections 10(1) and 10(3)]

1.73               ASIC’s regulatory costs for a financial year cannot include amounts directly relating to the regulation of persons who are not leviable entities. [Levy Bill paragraph 4(2)(a)]

1.74               ASIC’s enforcement expenses arising from its special account may vary significantly between years depending on the amount of litigation undertaken. If the amount of expenditure from this account was recovered as part of ASIC’s costs for each year, it could significantly impact the amount to be paid by each entity. As such, to provide more certainty for leviable entities, ASIC’s regulatory costs are also taken to include amounts debited against an appropriation and credited into its special accounts operated under the Public Governance, Performance and Accountability Act 2013 instead of the debits from these accounts. Appropriations credited into the accounts each year are broadly similar which means that the costs passed onto industry as a whole for ASIC enforcement will be broadly similar and the size of any changes passed on to entities in any one year will be minimised. ASIC will be able to recover these amounts even when the amounts appropriated are more than the amounts debited from the account.   [Levy Bill paragraphs 10(4)(b) and 10(5)(c)]

1.75               Some aspects of ASIC’s regulatory costs may not be suitable for recovery even though they would otherwise be within the meaning of the cost to ASIC of regulating leviable entities for a financial year. Accordingly, the regulations may prescribe amounts that ASIC must not include in the amount determined under subsection 10(2). Because these matters are to be set out in the regulations, Government retains control  in identifying costs which should not  be recovered from industry. [Levy Bill paragraph 10(4)(c))]

1.76               Similarly, there may be costs incurred by ASIC that the Government may wish to identify in regulation as appropriate for recovery from leviable entities. [Levy Bill paragraph 10(5)(e)]

1.77               ASIC’s regulatory costs for a financial year can also include  costs relating to surveillance, education, guidance, industry engagement and policy advice that relates either directly or indirectly to ASIC’s regulation of leviable entities. [Levy Bill paragraphs 10(5)(a) and (b)]

1.78               ASIC’s regulatory costs may include allowances for depreciation of capital expenses. This is because ASIC may be appropriated a significant amount of money in a financial year for certain capital expenses and it would be disproportionate to recover all of those amounts in a single year. The concept of depreciation gives ASIC flexibility to recover those costs over a period. [Levy Bill paragraph 10(5)(d)]

1.79               ASIC’s ability to include allowances for the depreciation of capital expenses extends to capital expenditure regardless of whether the expenditure occurred before or after 1 July 2017. For example, ASIC would be able to continue recovering the costs of depreciating the previous capital expenditure that is currently being recovered under the Market Supervisory Cost Recovery regime. [Levy Bill paragraph 10(5)(d)]

1.80               ASIC will not be able to include any costs as part of its regulatory costs for a financial year if it is prevented from doing so under subsection 10(4).   [Levy Bill subsection10(5)]

1.81               In making an instrument under subsection 10(2) that determines ASIC’s regulatory costs, ASIC must reduce its regulatory costs by the amount of any excess levy paid in relation to the previous financial year. Similarly, where there has been a shortfall in the recovery of its costs in relation to the previous financial year, ASIC must increase its regulatory costs by the amount of that shortfall. [Levy Bill subsection 10(6)]

1.82               Where ASIC has adjusted its regulatory costs for excesses or shortfalls of collected levy under subsection 10(6), ASIC must aim to attribute any excess or shortfall to the sub-sectors where the excess or shortfall previously arose. This is to ensure that if there is over or under recovery against particular sectors or sub-sectors, that this is transparent, and that any adjustment to ASIC’s regulatory costs based on this is made to those sub-sectors, as it would be inequitable to make adjustments to all sub-sectors. [Levy Bill paragraph 10(7)(c)]

1.83               Similarly, ASIC must generally have regard to the following principles when making an instrument under subsection 10(2) that determines its regulatory costs:

•        costs that directly relate to the regulation of leviable entities in a particular sub-sector should be attributed to that sub-sector;

•        costs that indirectly  relate to the regulation of a leaviable entity should be attributed to each relevant sub-sector in proportion to the regulatory resources dedicated to that sub-sector; and

•        costs of amounts appropriated into ASIC’s special accounts should be attributed to the sub-sectors to which the costs giving rise to debits against the special account relate. [Levy Bill paragraphs 10(7)(a), (b) and (d)]

1.84               Subsection 12(2) of the Legislation Act 2003 , which deals with the retrospective application of legislative instruments , does not apply to an instrument made by ASIC under subsection 10(2) that determines the amount that is the cost of regulating leviable entities for a financial year or regulations relating to costs that ASIC can include as part of its regulatory costs made under paragraphs 10(4)(c) and 10(5)(e) . [Levy Bill subsection 10(8)]

1.85               It is necessary that retrospective application not apply to these instruments made under the Levy Bill because of the nature of the cost-recovery model, and that the instruments must refer to matters that occurred prior to their commencement date. In this regard, the regulatory costs that will be declared are those for the previous financial year, and those costs will indirectly have the effect of setting the amounts of levy calculated. Accordingly, it is necessary that subsection 12(2) of the Legislation Act 2003 does not apply to an instrument made under subsection 10(2) or regulations made under paragraphs 10(4)(c) and 10(5)(e). [Levy Bill subsection 10(8)]

Disallowance and effect of legislative instruments made by ASIC

1.86                   These instruments are not to take effect until the end of the disallowance period, or a later day specified in the legislative instrument. This is so that ASIC is not able to collect amounts of levy before Parliament has had the opportunity to consider and scrutinise the matters included in those legislative instruments. [Levy Bill section 11]

1.87               The collection of a levy is intended to occur early each calendar year as part of a process of strengthening ASIC’s engagement with its regulated population. Receiving price signals at this time is intended to help industry be involved in understanding the drivers of ASIC’s costs in a timely fashion and in-turn shape ASIC’s strategic priorities for the upcoming financial year. 

1.88               The cost-recovery model calculates the amounts of levy payable after the end of the relevant financial year. In addition, returns may be due up to 31 October each year, and ASIC is only able to issue legislative instruments under subsection 10(2) and 9(6) of the Levy Bill after all returns are lodged with them. Between 31 October and early the following year, there would be insufficient sitting days for Parliament to consider these instruments in accordance with the time periods set out in the Legislation Act 2003 .

1.89               To provide commercial certainty as to when persons are required to pay a levy, it is necessary to adjust the periods under sections 42 (about the disallowance of legislative instruments) and 47 (about not remaking instruments while subject to disallowance) of the Legislation Act 2003 . The time periods in those sections are deemed to be shortened from 15 days of each House to 5 days of each House. An adjustment is also made to the default position under subsection 42(2), where if a motion is unresolved (in accordance with that subsection) at the end of the disallowance period, the instrument, or a provision of the instrument, is not automatically taken to have been disallowed. [Levy Bill subsection 11(2)]

1.90               If these instruments were subject to the disallowance period under the Legislation Act 2003 and ASIC was unable to collect a levy before the end of that period, the collection may take place over twelve months (and a full financial year) after the relevant regulation occurred.  This would create considerable commercial uncertainty for ASIC’s regulated population and detract from one of the strategic aims of cost-recovery, that is creating a price signal on the cost of regulation, to help shape ASIC’s strategic priorities.

1.91               The matters that will be contained in the legislative instruments are not the formulas or methods for determining the amounts; they are mechanistic applications of those formulas and will only include factual details of ASIC’s regulatory costs for each regulated sector or subsector for a particular year.  The disallowance period under the Legislation Act 2003 will apply to any regulations that are made.

1.92               Where either House of Parliament passes a resolution disallowing a provision of the instrument, the remaining provisions of the instrument takes effect. This is so that ASIC may continue to collect levy for all sub-sectors that were not the subject of the disallowance motion. [Levy Bill subsection 11(4)]

1.93               If either House of Parliament passes a resolution disallowing the instrument, the instrument does not take effect and ASIC will be unable to collect the levy. [Levy Bill subsection 11(5)]

When levy due for payment

1.94               A levy becomes due and payable by a person for a financial year on issuance of a notice given by ASIC in relation to that financial year.  That notice must specify a business day on which the levy is due and payable, provided that the business day specified is not earlier than 30 days after the day on which the notice is given. [Collection Bill subsection 9(1)]

1.95               If the person who ASIC would give a notice to nominates in writing that ASIC should give the notice to another person, then the notice may be given to the other nominated person. The obligation that is imposed by issuance of a notice may also be discharged by that nominated person. This does not, however, otherwise affect the person’s liability to pay a levy for that financial year. [Collection Bill subsection 9(2) subsection 9(3)]

Late payment penalty

1.96               If any levy payable by a person remains unpaid at the start of a levy month after the levy became due for payment, the person is liable to pay to the Commonwealth, for that levy month, a penalty of 20 per cent simple interest on the outstanding amount, calculated monthly. This is worked out using the following formula:

[Collection Bill subsection 10(1)]

1.97               Late payment penalty for a levy month is due and payable at the end of the levy month. [Collection Bill subsection 10(2)]

1.98               ASIC may, by written notice given to the person before, on or after the day on which late payment penalty would be due and payable, specify a later day as the day on which the late payment penalty is due and payable. The notice has effect, and is taken always to have had effect, according to its terms. [Collection Bill subsection 10(3)]

Annual returns

1.99               A person who is a leviable entity in relation to a financial year must provide to ASIC a return in the approved form. [Collection Bill paragraph 11(1)(a)]

1.100           The approved form may require the return to contain information relating to the leviable entity and information relating to one or more other leviable entities. The latter rule is to deal with situations where it is administratively easier for a person to provide data on behalf of another person. For example, a market participant may be required to report information on behalf of a securities dealer relating to particular matters that the participant may readily have at their disposal. [Collection Bill subsection 11(2)(b)]

1.101           If the approved form requires no information to be included in the return, then an entity will not be required to submit a return. This is so that where the provision of information is unnecessary no data needs to be reported to ASIC. [Collection Bill subsection 11(3)]

1.102           The general rule is that a return must be provided to ASIC by 31 October unless ASIC has determined an earlier date for the return to be provided. If ASIC has determined an earlier date, then they must publish a notice on their website setting out what day returns will be due, and the manner in which ASIC requires the return to be provided. The notice must state the date on which the notice was published on ASIC’s website. This flexibility is required because it may be necessary for ASIC to have additional time to calculate the amounts of levy. It may also allow ASIC to align the reporting of this annual return with other returns that persons must provide to ASIC. [Collection Bill subsection 11(4), paragraph 11(1)(b)]

1.103           While ASIC may choose to specify an earlier date than 31 October of the following financial year, they cannot set a date earlier than 31 August of that financial year.  They also cannot specify a date if it would be within two months from the date on which the notice is first published on their website. This is so that persons have sufficient notice that they will be required to provide information to ASIC. ASIC is able to specify a different day for different classes of leviable entity. [Collection Bill subsection 11(5)]

1.104           Where a person has failed to provide a return they are subject to a strict liability offence. A person commits this offence if the following elements are satisfied:

•        the person is subject to a requirement to provide to ASIC a return in the approved form by the applicable date under paragraph 11(1)(b); and

•        the person omits to do an act; and

•        the omission breaches the requirement.

[Collection Bill subsection 11(6)]

1.105           There are a range of similar offences under the Corporations Act 2001 , where if a person fails to comply with a reporting obligation they are guilty of a strict liability offence. Because of the mechanics of the levy calculation, if some entities fail to report this information, or provide false information, then all entities in that subsector may be levied a different amount than they otherwise would be. This is because the information provided will be used to determine that entity’s share of ASIC’s regulatory costs. If this information is inaccurate or not provided, the integrity of the system will be compromised. The imposition of strict liability also protects the public finances, by ensuring that the calculation of entities’ levy liabilities are based on the appropriate amounts. [Collection Bill subsection 11(7)]

1.106           The penalty for failing to provide a return is 10 penalty units. Because this is a strict liability offence, the penalty is more limited.  This is generally consistent with the other similar strict liability criminal offences under the Corporations Act 2001 discussed in paragraph 1.100.  The penalty of 10 penalty units is appropriate to this offence. [Collection Bill subsection 11(6)]

1.107           An offence is taken to include certain offences that may be committed under the Criminal Code, that relate to provisions in the Collection Bill.  This may include giving false or misleading information including false information in a return, which would be prohibited under section 137.1 of the Criminal Code . [Collection Bill section 7 definition of ‘offence against this Act’]

1.108           The offence provision does not apply to the extent that the person has a reasonable excuse. Under subsection 13.3(3) of the Criminal Code , a defendant bears an evidential burden in relation to proving that they have a reasonable excuse. Whether a person has a reasonable excuse, is a matter that is peculiarly within the knowledge of the defendant, particularly given the wide nature of matters that may be considered to be a ‘reasonable excuse’. It would be unreasonably time consuming and costly to ask the prosecution to disprove in each case any possible reasonable excuse for not submitting a return, or complying with a substantiation notice. This stands in contrast to a defendant, who would be able to establish more easily whether there exists such an excuse. This approach is consistent with the Commonwealth’s guide to framing offences.   [Collection Bill subsection 11(8)]

1.109           To establish the defence a person bears the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist. If the defendant discharges this burden, the prosecution must prove those matters beyond a reasonable doubt.  These matters are easier for a defendant to discharge, and does not completely displace the prosecutor’s burden: it merely defers that burden until after the evidential burden is discharged. [Collection Bill subsection 11(8)]

1.110           A return is not considered to be a document lodged with ASIC for the purposes of the Corporations Act 2001 , so the provisions that apply to forms ‘lodged with ASIC’ under that Act do not apply. [Collection Bill subsection 11(9)]

1.111           As discussed above in paragraphs 1.42 - 1.44, because a partnership, unincorporated association, some RSE licensees or certain notional entities are collectives and not legal persons, the obligation to provide a return under the Collection Bill is modified to treat them as though they are legal persons. This is achieved by imposing the obligation to provide a return on each member of the collective, and allowing that obligation to be discharged by any member of the collective. This means that only one member of the collective needs to provide a return. [Collection Bill subsections 23(1), 23(2), 24(1), 24(2), 25(1), 25(2), 26(1), 26(2), paragraph 26(3)(a), paragraph 26(4)(a)]

1.112           Because that obligation is supported by a strict liability criminal offence, it is also necessary to have specific rules about the circumstances in which each member of the collective are guilty of the offence. For the purpose of imposing liability the offence is taken to have been committed by each member of the collective who at the time the offence was committed:

•        did the relevant act or made the relevant omission; or

•        aided, abetted, counselled or procured the relevant act or omission; or

•        was in any way knowingly concerned in, or party to, the relevant act or omissions (whether directly or indirectly and whether by any act or omission).

[Collection Bill subsections 23(3), 24(3), 25 (3), paragraphs 26(3)(b), 26(4)(b)]

1.113           Criminal liability is also extended in this way for offences that apply under Chapter 7 of the Criminal Code , as they are taken to be offences under this Bill if they relate to matters under the Collection Bill. [Collection Bill section 7 definition of ‘offence against this Act’]

Substantiation notices

1.114           If a person has provided information to ASIC in a return relating to the person or to one or more other leviable entities, or the person is a leviable entity and information provided to ASIC is relevant to calculating the levy payable by the person, that person may be subject to a substantiation notice over the required information. It is necessary to have required information cover a wider scope than information that is required to be provided in a return, because not all entities will necessarily be required to provide a return, or some entities may provide information on behalf of other entities. [Collection Bill subsection 17(1)]

1.115           ASIC may give that person a written notice that requires the person to do either or both of the following:

•        give to ASIC, within the period and in the manner and form specified in the notice, information that could be capable of substantiating the required information;

•        produce to ASIC, within the period and in the manner and form specified in the notice, documents that could be capable of substantiating the required information.

[Collection Bill subsection 17(2)]

1.116           A substantiation notice must name the person to whom it is given, specify the information to which it relates, and explain the effect of sections 18 and 19. [Collection Bill subsection 17(3)]

1.117           A person who is given a substantiation notice must comply with the notice within the period specified in the notice, or within such time as ASIC has allowed. [Collection Bill subsection 18(1)]

1.118           A person who has been given a substantiation notice may, at any time within 21 days after the notice was given to the person, apply in writing to ASIC for an extension of the period for complying with the notice. [Collection Bill subsection 18(2)]

1.119           ASIC may, by written notice given to the person, extend the period within which the person must comply with the notice. [Collection Bill subsection 18(3)]

1.120           Where a person is subject to a requirement to comply with a substantiation notice and the person refuses or fails to comply with that requirement, they are subject to a strict liability criminal offence.  The maximum penalty for the offence is 10 penalty units, which is consistent with other similar offences under the ASIC Act and the Corporations Act 2001 . [Collection Bill subsection 19(1)]

1.121           The imposition of strict liability is justified because it is necessary to ensure the integrity of a regulatory regime. Because these notices are used to verify the information that is used to calculate the levy, it is essential that entities comply with these obligations and provide this information, or the integrity of the calculation of all levies will be compromised. [Collection Bill subsection 19(2)]

1.122           There are two offence-specific defences to this offence:

•        where a person has a reasonable excuse; and

•        where a person has complied with the notice to the extent to which the person is capable of complying with it.

1.123           Both of these matters are peculiarly within the knowledge of the defendant. Where a person has a reasonable excuse or can only comply to a certain extent, the person is the only one who can provide the necessary information required to substantiate the defence. It would also be significantly more difficult and costly for the prosecution to disprove these matters than for the defendant to establish the matters. This is particularly so because of the range of matters that may be considered to be a reasonable excuse, or prevent compliance with a notice. [Collection Bill subsections 19(3) and 19(4)]

1.124           As such, to establish the defences a person bears the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist. If the defendant discharges this burden, the prosecution must prove those matters beyond a reasonable doubt. This is consistent with the Commonwealth’s guide to framing offences. [Collection Bill subsections 19(3) and 19(4)]

1.125           The fact that answering a question or producing a document on the grounds that it might incriminate the person or expose the person to a penalty is considered to be a reasonable excuse.  [Collection Bill subsection 19(5)]

Default notice

1.126           In certain circumstances ASIC may give a leviable entity a notice stating the amount that, in ASIC’s opinion, is the levy payable by the leviable entity for a financial year.  ASIC may do this where the person fails to provide required information to ASIC or where ASIC is not satisfied with the information provided by the person. [Collection Bill subsection 12(1)]

1.127           ASIC may not, however, give a default notice where another leviable entity is required to provide a return on their behalf, and ASIC is not satisfied with that return. In this situation, ASIC can issue a substantiation notice under paragraph 17(1)(a).

1.128           If a person is issued with a notice setting out a default assessment, that amount is taken to be the levy payable by the person for the financial year, unless they discharge a legal burden and prove to the contrary. [Collection Bill subsection 12(2)]

Shortfall penalty

1.129           Where a person makes a false or misleading statement to ASIC and that statement has resulted in a person having paid a lesser levy than that person would have been liable for if the statement was not false or misleading, then that person is liable to a shortfall penalty. [Collection Bill subsection 13(1)]

1.130           A shortfall penalty only applies where the statement maker and the shortfall entity are the same entity. Where an entity provides a false or misleading statement on behalf of another entity, the second entity will not be liable to any shortfall penalty as a result of the statement. [Collection Bill subsection 13(1)]

1.131           The amount of penalty that the person is liable to pay is twice the amount of shortfall that results from the statement being false or misleading. [Collection Bill subsection 13(3)]

1.132           However, a person is not liable to a shortfall penalty if they took reasonable steps to ensure that the statement, when made, was correct. If a person is unable to point to reasonable steps taken, then a shortfall penalty will continue to apply. [Collection Bill subsection 13(2)]

1.133           A shortfall penalty is due and payable on a day specified in a notice given by ASIC to the person. The date specified cannot be less than 30 days after the day on which the notice was given. However, ASIC may, by written notice given to the person before, on or after the day on which the shortfall penalty would be due and payable specify a later day as the day on which the shortfall penalty is due and payable. The notice has effect, and is taken always to have had effect, according to its terms. [Collection Bill subsections 13(4) and 13(5)]

Payment to ASIC on behalf of the Commonwealth

1.134           Each of the following are payable to ASIC on behalf of the Commonwealth:

•        levy;

•        late payment penalty; and

•        shortfall penalty.

[Collection Bill section 14]

1.135           ASIC is authorised, as an agent of the Commonwealth, to bring proceedings in the name of the Commonwealth to recover the above amounts when they are due and payable by the person as a debt due to the Commonwealth. [Collection Bill section 16]

1.136           ASIC may also, on behalf of the Commonwealth, waive the payment of the whole or a part of any of those amounts, if they are satisfied that there are exceptional circumstances justifying the waiver.  They may do this on their own initiative or on written application by a person.  [Collection Bill section 15]

1.137           The written application by a person must be in the approved form. [Collection Bill subsection 15(3)]

Review of certain decisions

1.138           A person who is affected by a decision of ASIC to waive a levy may, if dissatisfied with the decision, request that ASIC reconsider the decision. [Collection Bill subsection 21(1)]

1.139           A request to review the decision must be made by notice given to ASIC in the approved form within 21 days from the day on which the person first received notice of the decision, or any further period that ASIC allows. The notice given to ASIC must also set out the reasons for making the request. [Collection Bill subsection 21 (2)]

1.140           After receiving the request, ASIC must review the decision or cause the decision to be reviewed by a person:

•        to whom ASIC’s power to review the decision is delegated; and

•        who was not involved in the making of the original decision.

[Collection Bill subsection 21(3)]

1.141           Within 30 business days after receiving the request, the person reviewing the decision must reconsider the decision and either confirm, revoke or vary the decision, as they think fit. [Collection Bill subsection 21(4)]

1.142           In the event that a person reviewing the decision has not made a decision after the period of 30 business days, they are taken to have confirmed the earlier decision. [Collection Bill subsection 21(5)]

1.143           A person reviewing the decision must give a notice in writing to the person that made the request that sets out the result of the reconsideration of the decision and the reasons for their decision. [Collection Bill subsection 21(6)]

1.144           A decision of ASIC that has been confirmed, varied or revoked, or a decision that has been taken to have been confirmed, may be appealed to the Administrative Appeals Tribunal on application for a review of that decision, or a decision that is taken to have been made. [Collection Bill subsection 22]

Approved form

1.145           The various documents required under the Collection Bill will be in the approved form where they are in the form prescribed by the regulations and are provided in the manner prescribed by the regulations.  If the regulations have not, however, prescribed a form, then both of those matters may be approved by ASIC in writing. This is consistent with the approved form provision in the Corporations Act 2001 and provides ASIC with administrative flexibility to specify the form in which it requires information. Different approved forms may be prescribed or approved for different classes of persons. [Collection Bill section 27(1)(a)]

Exempting laws ineffective

1.146           To make it clear that no law passed prior to the commencement of the Collection Bill is intended to exempt a person from liability to levy, there is a specific provision that provides for that effect.  It also makes it clear that for a law passed after the commencement of the Collection Bill to exempt a person from liability to levy, they must expressly confer an exemption from levy under the Collection Bill: there cannot be an implied exemption from the liability to levy.  These rules do not, however, apply to an exemption that is granted under the Collection Bill or the Levy Bill. [Collection Bill section 20]

Administrative sanctions for non-payment of levy for twelve months

1.147           ASIC may take a range of administrative actions against entities where an amount of levy, late payment penalty, or shortfall penalty remains unpaid for a period of twelve months from the date that those amounts are payable by the entity. What action is taken will depend on the entity type and the various licences the entity holds.  These administrative actions include:

•        company deregistration by ASIC under section 601AB of the Corporations Act 2001 ;

•        immediate suspension or cancellation of an Australian Financial Services Licence by ASIC under section 915B of the Corporations Act 2001 ;

•        suspension or cancellation of an Australian Credit Licence without hearing by ASIC under section 54 of the National Consumer Credit Protection Act 2009 ;

•        immediate suspension or cancellation of an Australian market licence by the Minister under section 797B of the Corporations Act 2001 ;

•        immediate suspension or cancellation of an Australian CS facility licence by the Minister under section 826B of the Corporations Act 2001 ;

•        immediate suspension or cancellation of a derivative trade repository licence by ASIC under section 905H of the Corporations Act 2001 ;

•        suspension of a liquidator’s registration under section 40-25 of Schedule 2 to the Corporations Act 2001 ;

•        cancelation  of a liquidator’s registration under section 40-30 of Schedule 2 to the Corporations Act 2001 ;

•        suspension or cancellation of an auditor’s registration under subsection 1291 of the Corporations Act 2001 ; and

•        suspension or cancellation of the registration of an authorised audit company by ASIC under section 1299I of the Corporations Act 2001 .

[Consequential Amendments Bill Schedule 1 item 3, items 8 to 19, and item 28]

1.148           Many of these provisions use the automatic suspension, cancellation or deregistration powers. This is because the condition for these actions being taken is that the amounts have been unpaid for twelve months. Prior to suspension action being taken, entities have the ability to apply to ASIC for a waiver of their liability for a levy if there are exceptional circumstances justifying a waiver, or for extensions to the date on which the levy is due and payable. [Consequential Amendments Bill Schedule 1 item 3, items 8 to 19, and item 28]

1.149           Certain amendments are made so that ASIC may reinstate the registration of a company that has been deregistered. ASIC may reinstate the company where they have received an application, and the company has paid the levy, any late payment penalty or shortfall penalty in full.   [Consequential Amendments Bill Schedule 1 items 4 and 5]

1.150           Once a company has been reinstated, ASIC must give a notice of the reinstatement to that company and publish note of that reinstatement in the Gazette. [Consequential Amendments Bill Schedule 1 items 6 and 7]

1.151           Certain other amendments are also made to provide ASIC with a power to cancel or suspend an auditor’s registration for non-payment of a levy. Where ASIC has used this power it must, within 10 business days after making the decision, give a written notice setting out the decision and the reasons for the decision. [Consequential Amendments Bill Schedule 1 item 15 section 1291A Corporations Act 2001]

1.152           The decision comes into effect on the day after the notice is given to the person. A failure by ASIC to give the notice does not, however, affect the validity of the decision. [Consequential Amendments Bill Schedule 1 item 15 section]

1.153           Where ASIC has chosen to suspend an auditor’s registration they may at any time vary or revoke the suspension by giving written notice to the person. [Consequential Amendments Bill Schedule 1 item 15]

ASIC’s annual ‘Dashboard’ reports

1.154           To increase transparency of ASIC’s expenditure, ASIC must publish on its website information in relation to its regulatory costs for the previous financial year as soon as practicable after 31 October each year. This information must relate to the financial year that finished on 30 June of that year. As this obligation applies to financial years that end after the commencement of the ASIC Supervisory Cost Recovery Levy Act 2017 , the first year that ASIC will be required to publish this in relation to will be the 2017-18 financial year. [Consequential Amendments Bill Schedule 1 item 2]

1.155           The information that ASIC will be required to publish must include its total regulatory costs in relation to leviable entities, and how it has apportioned those costs across each sector and sub-sector. In relation to each sector, ASIC will also be required to publish how it has apportioned its costs by reference to the types of activities undertaken and the different kinds of expenses incurred by ASIC in the financial year.  ASIC may also be required to publish other information that is included if that information is required by the regulations. [Consequential Amendments Bill Schedule 1 item 2]

Privacy of information

1.156           To ensure that information given to ASIC in a return is treated as protected information, the Collection Bill and Levy Bill are listed in section 12A(1) of the ASIC Act. [Consequential Amendments Bill Schedule 1 item 1]

1.157           Although information given in an annual return is treated as protected information, the publication of summaries of information or statistics derived from the information is permitted under the ASIC Act.  This will allow ASIC to publish aggregated sector-level information in the annual legislative instrument, and its dashboard report.

Repeal of existing Market Supervision Cost Recovery Regime

1.158           Because of the introduction of the industry funding model, the existing market supervision cost recovery regime is no longer necessary. This is because those costs will be recovered through the Industry Funding Model from 2017-18.  Accordingly, certain amendments are made to the Corporations (Fees) Act 2001 that if left unchanged would allow ASIC to charge for those matters. [Consequential Amendments Bill, Schedule 1 items 20 to 27]

1.159           Despite the repeal of the regime, it will continue to operate throughout quarter four of the 2016-17 financial year. The final bills for the 2016-17 year will not be issued until after the repeal of these items.  Accordingly, a savings rule is inserted to preserve ASIC’s ability to recoup its outstanding fees and charges against operators of and participants in licenced markets that occurred before the repeal. This will not, however, allow ASIC to continue to charge for costs incurred after the commencement of this bill. [Consequential Amendments Bill Schedule 1 item 29]

Regulations and Rules made for the purposes of the Levy Bill and Collection Bill

1.160           The Levy Bill and Collection Bill give a general regulation making power to the Governor-General to make regulations prescribing matters required or permitted, or necessary or convenient. [Collection Bill subsection 28(3); Levy Bill section 13]

1.161           The Collection Bill also includes a power for the Minister to make rules by legislative instrument prescribing matters for the same purposes as the regulations, but with additional limitations.  Those limitations are that the rules may not:

•        create an offence or civil penalty;

•        provide powers of arrest or detention or entry, search or seizure;

•        impose a tax;

•        set an amount to be appropriated from the Consolidated Revenue Fund under an appropriation in this Act; or

•        directly amend the text of this Act.

[Collection Bill subsections 28(1), 28(2)]



Chapter 2          

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

ASIC Supervisory Cost Recovery Levy

2.1                   These Bills are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

2.2                   The Bills impose a levy on persons regulated by ASIC for the purpose of recovering ASIC’s regulatory costs. The levy will be calculated based on certain measures of business activity that are proxies for ASIC’s regulatory costs incurred in relation to those entities.

2.3                   The activity metrics that will be used to apportion ASIC’s regulatory costs will be reported to ASIC in annual returns each year.  Where an entity has failed to provide this information to ASIC they will be subject to a strict liability criminal offence. The entity may also have a default assessment made against them, where they have failed to provide a return, or the information provided in the return is false or misleading.

2.4                   If ASIC is not satisfied with the information used to calculate the levy, then they may issue a notice to an entity asking them to furnish information or produce documents to substantiate that information. Non-compliance with such a notice will be a strict liability criminal offence.

2.5                   ASIC will be required to publish information used in the calculation of the levy in an annual legislative instrument each year. This information will be de-personalised and in an aggregate format. ASIC will also publish this information on its website each year, in a similar format.

2.6                   Leviable entities that have not paid a levy when it is due and payable will be subject to a late payment penalty. Similarly, where a leviable entity has submitted false or misleading information which has resulted in them paying a lesser amount than they otherwise would be liable to pay, they will be subject to a shortfall penalty.

2.7                   Where entities have failed to pay a levy, late payment penalty or shortfall penalty for a twelve month period, ASIC may take certain administrative actions, including suspension or cancellation of licences or registration.

Human rights implications

Collection of information

2.8                   A number of provisions of the Collection Bill engage article 17 of the International Covenant on Civil and Political Rights, which prohibits unlawful or arbitrary interferences with a person’s privacy. These rights are engaged where:

•        a person is required to provide information to ASIC in an annual return; and

•        a person must answer a substantiation notice, requiring information to be provided.

2.9                   The requirement to provide a return involves the collection, storage and use of information for the purpose of calculating the rates of levy for all leviable entities in a sub-sector. The collection and storage of this information is necessary because it is used to apportion ASIC’s regulatory costs.

2.10               While this information is collected by ASIC, its use is limited to calculation of the levies. This is because the Consequential Amendments Bill makes information collected under the Collection Bill protected information for the purposes of the ASIC Act. Because it is protected information, ASIC must take all reasonable steps to protect that information from unauthorised use or disclosure.

2.11               Significantly, the only use or disclosure of this information will be through ASIC issuing an annual legislative instrument and publishing a dashboard report that will contain de-personalized summary statistics of this information, reported at the sector and sub-sector levels. Because this disclosure will be de-personalized and merely show summary statistics, its publication will be permitted under the ASIC Act.

2.12               A more general disclosure of personal or protected information to the public is not permitted under the Collection Bill.

2.13               To the extent the Collection Bill engages Article 17, it does so appropriately and is consistent with its bill’s objectives. This is because the collection of the information is necessary to calculate the amounts of levy, and to the extent that personal information is collected and stored, its disclosure and use is limited to publishing de-personalized summary information.

Offence of failing to provide a return or complying with a substantiation notice

2.14               A number of the provisions of the Collection Bill engage article 14(2) of the International Covenant on Civil and Political Rights, that a person shall have the right to be presumed innocent until proven guilty according to law. These bills create strict liability criminal offences where:

•        a person has failed to provide a return to ASIC (subsection 11(6)); or

•        a person has not complied with a substantiation notice (section 19).

2.15               Both of these offences are subject to a maximum penalty of 10 penalty units.

2.16               The information that is contained in both returns and substantiation notices are used to determine the amounts of levy that entities will be liable to. Because of the mechanics of the levy calculation, if some entities fail to report this information, or provide false information, then all entities in that subsector may face a different amount of levy than they otherwise would. This is because the information provided will be used to determine that entity’s share of ASIC’s regulatory costs. If this information is inaccurate or not provided, the integrity of the system, will be compromised. This also protects the public finances, by ensuring that entities are levied the appropriate amount.

2.17               For both offences, there exists the offence-specific defence of a reasonable excuse, so that a person will not be liable where they have such an excuse. In addition, for non-compliance with a substantiation notice, a person is not liable if they comply with the notice to the extent that they are able to comply.

2.18               These offence-specific defences also engage article 14(2) of the International Covenant on Civil and Political Rights because they displace the assumption that the prosecution must prove every element of the offence.  However, whether a person has a reasonable excuse, or has complied with a notice to the extent that they are able to are matters that are peculiarly within the knowledge of the defendant, particularly given the wide nature of the defences. It would be unreasonably time consuming and costly to ask the prosecution to disprove in each case any possible reasonable excuse for not submitting a return, or complying with a substantiation notice. This stands in contrast to a defendant, who would be able to establish more easily whether there exists such an excuse, or they have complied to the extent that they are able to.

2.19               To establish these defences, a person bears the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist. If the defendant discharges this burden, the prosecution must prove those matters beyond a reasonable doubt. This is easier for a defendant to discharge, and does not completely displace the prosecutor’s burden; it merely defers that burden until after the evidential burden is discharged.

2.20               To the extent the Collection Bill engages Article 14, it is does so appropriately and is consistent with the bill’s objectives. This is because of the need to protect the general revenue and ensure the integrity of the levy calculations. Accordingly, a strict liability criminal offence is justified for both matters.  As there is only a penalty of 10 penalty units, and there exists wide offence-specific defences, the imposition of strict liability is proportional. The offence-specific defences are also appropriate and adapted because the matters that establish those defences are peculiarly within a defendant’s knowledge, so can be discharged more easily than by the prosecution disproving the matter.

Conclusion

2.21               These bills are compatible with the human rights they engage and do not unnecessarily, unreasonably or disproportionately limit the rights to unlawful or arbitrary interference with privacy, or the presumption of innocence.



Chapter 3          

Regulation Impact Statement

 

3.1                   In line with the Government’s regulatory burden reporting requirements, a full Regulation Impact Statement - including final costings - will be released when the regulations to implement the proposed ASIC industry funding model are finalised.

3.2                   The industry funding model, as currently developed, will increase regulatory compliance costs by $21.1 million per annum. However, this amount is subject to change as the Government continues to consult with industry and further refine the levy mechanisms for each industry subsector.

Policy objective

3.3                   The Australian Securities and Investments Commission (ASIC) is Australia’s corporate, markets, consumer credit and financial services regulator.  Under the Australian Securities and Investments Commission Act 2001 , ASIC is charged with:

•        maintaining, facilitating and improving the performance of the financial system and entities in it;

•        promoting confident and informed participation by investors and consumers in the financial system;

•        receiving, processing and storing, efficiently and quickly, the information given to ASIC under the law;

•        ensuring that information is available as soon as practicable for access by the public;

•        administering the law effectively and with minimal procedural requirements; and

•        enforcing and giving effect to the law.

3.4                   Consistent with these responsibilities,  ASIC regulates Australian companies, financial markets, financial services organisations and professionals who deal and advise in investments, superannuation funds, insurance providers and deposit taking and credit providers. It is also responsible for the supervision of trading on Australia’s domestic licensed equity, derivatives and futures markets.  Further, as the consumer credit regulator, ASIC licenses and regulates businesses engaged in consumer credit activities (including banks, credit unions, finance companies, and mortgage and finance brokers).

3.5                   In addition to its regulatory functions, ASIC maintains a number of business registries.

3.6                   ASIC currently receives Budget appropriation for its regulatory and registry activities.  Only a small proportion of ASIC’s funding (around 15 per cent of its departmental appropriation) is collected directly from industry participants (through the Financial Institutions Supervisory Levies administered by the Australian Prudential Regulation Authority and fees for market supervision, as well as fees for certain services provided by ASIC). 

3.7                   In addition, ASIC collects revenue on behalf of the Government under the Corporations (Fees) Act 2001 and the Corporations (Review Fees) Act 2003 .  Under these acts, ASIC collects fees for matters such as the lodgement and registration of documents, the inspection or search of a register, and annual fees payable by companies and registered schemes.  These fees are imposed as taxes and the revenue collected is paid into the consolidated revenue fund.

3.8                   Accordingly, under ASIC’s existing funding model there is a limited relationship between the costs of ASIC’s regulatory activities and the fees paid by industry participants who create the need for these activities, especially in relation to the financial services and markets sectors. This can lead to inequitable and inefficient outcomes with stakeholders not recognising the full cost of their actions.

3.9                   The existing model for funding ASIC is also inconsistent with the Government’s cost recovery guidelines that state that ‘where appropriate, non-government recipients of specific government activities should be charged some or all of the costs of these activities.’ That is, where appropriate, those entities that create the need for regulation should bear the cost of that regulation.

3.10               In response, both the Financial System Inquiry (Murray Inquiry) and the Senate Economics Committee have recommended that ASIC be industry funded.

3.11               Industry funding has the potential to give ASIC more predictable funding, as well as strengthen engagement between ASIC and industry on the costs of conduct and market regulation.

Implementation options

3.12               The Government is investigating three options to address the disconnect between the costs of ASIC’s regulatory activities and the general charges paid by industry participants who engage in and benefit from these activities. These are to:

1.            maintain the status quo;

2.            recover the costs of ASIC’s regulatory activities through a combination of cost recovery levies, fees-for-service, and statutory levies; or

3.            require ASIC to adopt additional transparency and accountability measures around how it employs its resources to deliver its activities so that industry can monitor the cost of ASIC’s regulatory activities.

Assessment of impacts

Option 1: Maintain the Status Quo

3.13               Option 1 would not address the problems identified. However, it would not require any of the entities regulated by ASIC that currently do not pay fees or charges to ASIC on an annual basis to adjust their systems and processes to do so in the future and would not require ASIC to collect additional information from industry.

3.14               As this option would maintain the status quo and require no regulatory or legislative changes, there are no regulatory costs or savings associated with this option.

Option 2: Recover the costs of ASIC’s regulatory activities

3.15               The primary benefits of cost recovery, as outlined by the Government’s Charging Framework are:

•        that it promotes equity as the recipients of a government activity bear its costs;

•        that it can influence demand for government activities;

•        that it can improve the efficiency, productivity and responsiveness of Government activities and accountability for those activities; and

•        that it can increase cost consciousness for all stakeholders by raising awareness of how much a government activity costs.

Economy and Industry

3.16               The efficiency of the economy and the use of regulatory resources may improve if the Government adopted cost recovery for ASIC’s regulatory activities. This is because direct price signals would influence and shape the industry behaviours that drive the need for regulatory oversight.

3.17               For example, industry subsectors that present a high risk to consumers and have enforcement action taken against them at higher rates will pay substantially higher annual levies than subsectors that present limited risks to consumers and the broader economy. This not only effectively rewards industry subsectors that are doing the right thing, but also creates additional incentives for regulated entities to foster a culture of compliance and ensure that they are meeting their legal obligations. This is because doing so should, over time, reduce regulatory costs for that sector.

3.18               Economic efficiency may also increase as a result of ASIC’s increased accountability to its regulated population. This is because the higher level of transparency required under the Charging Framework should act as an impetus for a more effective and efficient allocation of ASIC’s resources that better reflects market risk and better ensure that ASIC’s regulatory services are provided at efficient cost. Under the Government’s Charging Framework cost recovery charges must be closely linked to the specific activity and set to recover the efficient costs of the specific activity. This is designed to ensure that regulated entities receive value for money on cost recovered Government services. This is not necessarily occurring under ASIC’s existing funding model.

3.19               An increase in the levies and fees payable by regulated entities could pose a barrier to entry in some markets. This could not only curtail competition, but also limit Australians’ access to some essential financial services - particularly in regional areas where large financial service providers may not be available. This is particularly critical when considering the costs of acquiring and maintaining a license. Potential impacts on competition and innovation would be a focus during industry consultation to identify areas where cost recovery may not be appropriate.

3.20               It is also important to consider who will bear the incidence of any cost recovery charge and whether this could negatively affect competition. For example, if large entities can afford for the incidence of the charge to be borne by equity holders, this could allow them to price their services more competitively than smaller organisations that must pass the incidence of any new charges on to their consumers through higher prices.

3.21               For these reasons any cost recovery levies would be calculated in a manner that not only ensured that those creating the most need for regulation paid a levy commensurate with the cost of providing this regulation, but also took account of broader competition issues. This would be analogous with the cost recovery model used by the Australian Prudential Regulation Authority.

3.22               While the collection of additional data will allow levies to be set more accurately, it will impose a regulatory cost on industry participants that must comply with the regime. It will be important to balance the benefits of additional specificity in determining the appropriate levy against the additional costs associated with obtaining more granular data from a larger number of entities. This will be considered as part of the development of any cost recovery model for ASIC, with a view to using metrics used for other reporting purposes to minimise the regulatory burden.

ASIC

3.23               The primary benefit to ASIC is that additional data collected from regulated entities to support accurate cost apportionment will improve its ability to identify, mitigate, and respond to emerging risks. This will improve outcomes for consumers.

3.24               Under an industry funding model, ASIC’s budgetary stability should also increase.  This increased stability in ASIC’s funding would allow ASIC to better plan their future regulatory activities, which could deliver better outcomes for market integrity and consumer confidence. The International Monetary Fund (IMF) and the International Organization of Securities Commissions (IOSCO) support industry funding for financial market regulators for these reasons.

3.25               The government may still wish to apply efficiency dividends to ASIC to ensure that ASIC is using their resources as efficiently as possible.

Commonwealth Government

3.26               The primary benefit for the Government in moving from a budget funded model to a cost recovery model is that funds currently directed to ASIC (approximately $250 million per annum) would be able to redirected for the benefit of all taxpayers, whether through increased spending on priority programmes or through deficit and debt reduction aimed at reducing Australia’s future tax burden. 

Option 3: Increase ASIC’s transparency and accountability to industry

3.27               Under Option 3, the problems identified would only be partially addressed.  Additional transparency and accountability measures would provide the market and government with greater information on how ASIC employs its resources and enable them to better assess whether ASIC is using its resources efficiently and in the most effective manner.  However, the absence of any cost recovery charges would mean that the incentive to take full advantage of these reporting tools to effectively monitor ASIC’s performance would be diminished.

3.28               Similarly, the absence of any cost recovery charges would reduce industry’s incentive to change its behaviour in order to reduce demand for government services and to improve the efficiency, productivity and responsiveness of Government activities. This is because the cost of ASIC’s activities will not be borne directly by those who create the need for the activity.

3.29               Under this option ASIC would also remain budget funded and so would not have any greater budgetary stability than exists currently.

3.30               However , this option would not require any of the entities regulated by ASIC that currently do not pay fees or charges to ASIC on an annual basis to adjust their systems and processes to do so in the future. It would also not require ASIC to collect additional information from the entities that ASIC regulates.

3.31               No regulatory or legislative changes would be required and there would be no regulatory costs associated with this option.

Impact group identification

3.32               Under Option 2 regulatory costs will arise primarily for two reasons:

•        around 7,500 entities (based on the model consulted on in October 2016) will have to establish new reporting processes to provide ASIC with data not currently collected; and

•        around 55,000 entities (based on the model consulted on in October 2016) will have to report either new data to ASIC, or data already provided to ASIC more frequently.

3.33               Table 1 details the approximate number of entities that ASIC regulates in each industry subsector identified in the October 2016 consultation paper on the Industry Funding Model.

Table 1: Approximate number of entities regulated by ASIC

Entity Type

Approximate Number

Public (listed, disclosing) companies

2,000

Public (unlisted, disclosing) companies

838

Public (unlisted, non-disclosing) companies

19,000

Large Proprietary (Pty) Limited (Ltd) companies

9,000

Small Pty Ltd companies

2,100,000

Registered liquidators

710

Authorised audit companies and Audit firms that audit publicly listed entities

125

Registered company auditors

4,700

Credit providers

1,271

Small amount credit providers

332

Credit intermediaries

5,100

Deposit product providers

258

Payment product providers

266

Margin lenders

22

Superannuation trustees

144

Responsible entities

490

Wholesale trustees

1,749

Operators of an Investor Directed Portfolio Service

35

Custodians

861

SMSF auditors

6,500

Traditional trustee company service providers

12

Managed Discretionary Account (MDA) operators

64

Large equity market operators

2

Large futures markets operators

1

Small securities markets operators

3

Small futures market operators

1

Small equity market operators with self-listing function only

1

Small derivatives market operators

4

Foreign market operators

6

Trade repository licensees

3

Exempt markets

26

Credit rating agencies

7

Clearing and Settlement (CS) facility licensees

7

Exempt CS facility licensees

1

Market participants

133

Securities dealers

2,840

Investment banks

570

Retail OTC derivative issuers

65

Wholesale electricity dealers

59

Licensees that provide personal advice on Tier 1 products to retail clients

2,150

Licensees that provide personal advice to Tier 2 products only to retail clients

614

Licensees that provide general advice only to retail or wholesale clients

898

Licensees that provide personal advice to wholesale clients only

1,370

Insurance product issuers

85

Insurance product distributors

464

Risk management product providers

55

Total number of regulated entities

2,162,842

Consultation

3.34               Stakeholder consultation is critical to ensuring that an ASIC industry funding model is understood by the community and does not generate any unintended consequences.

3.35               To inform the development of this proposal, the Government released a consultation paper detailing a possible cost recovery methodology and accountability framework in mid-2015. This was followed by a number of industry roundtables in Sydney, Melbourne and Brisbane. Through this process, the Government received 79 submissions from members of industry and the broader community.  

3.36               The outcomes of this first round of consultation assisted in the refinement of the proposed ASIC industry funding model. These refinements were reflected in the Government’s October 2016 proposals paper. Formal submissions on this proposals paper, as well as views put forward at industry roundtables held in November 2016, have assisted the Government in finalising the design of the industry funding model.

3.37               The Government conducted public consultation on draft legislation, and explanatory materials between 22 February and 10 March 2017. Feedback was critical to the finalisation of the Bills to introduce the industry funding model.

3.38               Finally, the Government will consult on draft regulations to implement the industry funding model later in the first half of 2017. All of the draft materials required to introduce the ASIC industry funding model would be uploaded to the Treasury website with, ideally, at least four weeks provided for public consultation. Opening submissions to the public will ensure that all stakeholders have the opportunity to comment on legislation that may affect them.

3.39               These consultation processes to support the development of the final model will be supplemented by a range of additional reporting and consultation processes as cost recovery is introduced. This includes consultation on ASIC’s strategic risk outlook and the publication of a Cost Recovery Implementation Statement in 2017.

Conclusion and recommended option

3.40               Option 2 (that is, introduce an industry funding model and additional accountability mechanisms for ASIC) is the preferred option. This is because:

•        it promotes equity as the recipients of a government activity bear its costs;

•        it can improve the efficiency, productivity and responsiveness of Government activities and accountability for those activities;

•        it can increase cost consciousness for all stakeholders by raising awareness of how much a government activity costs; and

•        it allows for the redirection of hundreds of millions of taxpayer dollars towards activities that benefit all taxpayers.

3.41               While Option 2 does have the largest regulatory burden of all options considered ($21.1 million per annum), this is small relative to industry funding’s benefits and will decline over time as processes to support additional data collection requirements become business as usual. Enhanced data collection, in particular, will not only support better apportionment of ASIC’s costs (reducing the chance of cross-subsidisation), it will also enable ASIC to better identify and respond to emerging risks in its regulated population. This regulatory costing is also subject to change as the Industry Funding Model is further refined in response to stakeholder feedback on draft regulations scheduled to be released in early-April 2017.

3.42               Option 1, to maintain the status quo, was not considered a viable alternative to Option 2. Option 1 does not address the underlying problem, which is that there is a limited relationship between the costs of ASIC’s regulatory activities and the fees paid by industry participants that create the need for these activities.

3.43               Additionally, while Option 1 does have the advantage of not imposing any regulatory costs on industry, it also offers no benefits to taxpayers or the broader community.

3.44               Option 3 was not considered to be a viable alternative to Option 2 for similar reasons. While increased accountability would likely improve ASIC’s efficiency and productivity, it would not increase cost consciousness, create further incentives for industry to improve its conduct, improve ASIC’s understanding of market risks, or allow for the redirection of government funds towards activities that benefit a broader suite of taxpayers.