AFA News 29 July 2021. On Friday 23 July 2021, ASIC released their Cost Recovery Implementation Statement (CRIS) for the 2020/21 year, which sets out the projection of the ASIC Funding Levy for each sector of the regulated population. This is a large document; however, financial advice is covered on pages 111 to 120. The key pages for financial advisers providing personal advice to retail clients are pages 115 and the summary on page 120.
The cost per adviser has risen from $2,426 in 2019/20 to a projected $3,138 in 2020/21. We have undertaken some analysis of the key drivers of the increase in the total spend over the last two years, with Enforcement costs being the biggest factor, followed by an increase in the allocation of indirect costs. We have assumed that the increase in indirect costs is largely driven by the increase in Enforcement costs.
|Expense Category||2018/19 $’m||2020/21 $’m||Change $’m|
|Supervision & Surveillance||3.79||8.55||4.76|
The big issue with Enforcement costs is the litigation that ASIC is undertaking against large institutions as an outcome of the Banking Royal Commission. The big problem is that whilst financial advisers are funding this, any penalties that are awarded, are paid to the Government. Advisers might only see a small benefit where ASIC wins the case and costs are awarded to ASIC. There is very little visibility of any of these matters, however in recent weeks there have been announcements about ASIC discontinuing prosecution action against AMP for Fees for no Service and winning a fee related case against BT Funds Management and Asgard. We can assume that financial advice has funded both of these cases. We have estimated that the additional spend on Enforcement related activity, including Indirect costs, could be as much as $50m over the last two years.
The AFA issued a media release on 27 July 2021, describing this funding of Enforcement activity as forced litigation funding, in what will always be a poor investment, as the Government will ultimately be the beneficiary of any penalties that are awarded.
We did see some insight into how this works with a response from ASIC to a Question on Notice from Senator Slade Brockman from June 2021. Senator Brockman was asking about a case that ASIC won against Westpac in the High Court last year. In this case, the Westpac super funds were operating on the basis of providing general advice to members to consolidate their super accounts. ASIC took action on the basis that they believed that it was personal advice. The High Court ruled that it was personal advice, as it was reasonable to assume that the members believed that Westpac would have taken their personal circumstances into account in recommending the super consolidation. The cost of the case has been $600k over three years. Despite this being all about the actions of a super fund, ASIC decided to allocate 60% of the cost of this matter to financial advisers. They have argued that taking action on regulating the boundaries of financial advice is in the interest of financial advisers “because it maintains integrity and trust in the licensed sector and deters competition from unlicensed and unregulated competitors”. We would suggest that this is very much debatable.
For any feedback on the ASIC Funding Levy, please email firstname.lastname@example.org.
Issued 29.07.2021. AFA Policy & Education Update