What is industry funding?

The Government has introduced new laws to change the way ASIC is funded. Under the new arrangements, those who create the need for and benefit from ASIC's regulation will bear the costs.

Treasury began the consultation process in August 2015 with a consultation paper and a series of round tables.

In April 2016, the federal government announced it would introduce industry funding for ASIC, subject to further consultation with industry. A revised proposal paper was published in November 2016 and further industry round tables were held. The legislation and regulations were also subject to industry consultation before these were finalised.

Industry funding legislation passed on 15 June 2017. The regulations were finalised on 27 June 2017, and the new regime took effect on 1 July 2017.

What regulatory activities will industry fund?

Most of ASIC's regulatory costs will be recovered from industry. These activities are outlined in our Cost recovery implementation statement (CRIS) published in October 2017, and include stakeholder engagement, education, guidance, surveillance, enforcement, and policy advice.

Why has the Government decided on an 'industry pays' approach?

An 'industry pays' model means that the funding of regulatory activities undertaken by ASIC is met by those creating the need for regulation, rather than the Australian taxpayer.

How much will regulated entities pay and when?

We will calculate individual entity levies based on what it costs ASIC to regulate each subsector, in addition to the data provided by or verified by entities in their annual returns, via a new Regulatory Portal (launching in 2018).

The metrics used to calculate the levy for each subsector are readily available and will include one or two of the following:

• revenue generated
• total assets
• credit provided
• deposits held for deposit product providers
• number of new and ongoing appointments for registered liquidators.

The industry funding model will recover costs associated with the previous financial year. So entities will receive their first invoice in January 2019 for the 2017-18 financial year

Regulated entities have been categorised into 6 sectors and 48 subsectors across all corporate entities subject to the Corporations Act. For further detail on the sectors and subsectors refer to Report 535   ASIC cost recovery arrangements 2017-18.

ASIC's regulatory costs will be allocated among these subsectors through either a flat (or basic) levy or a graduated levy.

• What subsector is my entity in?

What is a flat levy?

A flat levy shares the total cost of regulating a subsector equally among the entities operating in that subsector. A flat levy will be calculated by dividing ASIC's regulatory costs for a subsector between the number of entities in that subsector.

What is a graduated levy?

In some subsectors, an entity's size or level of business activity will drive the level of risk and regulatory effort required from ASIC and therefore the levy charged. A graduated levy will be calculated by dividing ASIC's regulatory costs for a subsector between entities based on the relevant metric and can be made up of (i) a minimum levy and (ii) a variable levy component.

• The minimum levy is an estimate of our direct and indirect costs of undertaking stakeholder engagement, policy advice, guidance, education and a portion of our capital expenditure allowance. Our remaining regulatory costs for the subsector will be recovered through the variable component of the levy.
• The variable component of the graduated levy is driven by our enforcement and surveillance activities for each subsector. The cost to undertake these regulatory activities varies significantly—the conduct and behaviour of industry participants influences our resulting risk assessment of the subsector and the level of regulatory oversight required.

Under the graduated levy component formula, all entities in the subsector must pay (i) the minimum levy, and (ii) the additional variable component, based on each entity's share of relevant activity within the subsector.

What if my entity falls into more than one subsector?

If an entity holds more than one licence or registration, the levy relevant for each subsector is payable. For example, if an entity is both a super trustee and a listed company, both levies will be payable and their invoices will reflect this.

What new obligations do regulated entities have?

Between July and September each year, regulated entities will provide ASIC with their business activity metrics for the previous financial year via the new Regulatory Portal which we expect to launch mid-2018.

For those required to pay a flat levy only, the information you provide will confirm which subsector you have been operating in. This will allow us to divide our costs with the final number of entities operating in your subsector.

For those paying a graduated levy, the information you provide will confirm your entity's 'share' of the leviable activities in your subsector and will determine your final invoice amount.

How will small proprietary companies be impacted?

ASIC’s regulatory costs for small proprietary companies will be collected through an increase of $4 to their Annual Review Fee, which will take effect from 1 July 2018.

Note: If the entity is a small proprietary limited company and does not fall into one of the other subsectors then they will only pay the $4. However, if they are a small proprietary company and fall into a subsector then they will receive an industry funding letter from ASIC as a levy will apply. The company will also be required to submit metrics in the Portal.

The ASIC website contains a definition of a small proprietary company.

How will large proprietary companies be impacted?

Large proprietary companies will also pay the $4 increase in their Annual Review Fee. This will be offset against the levy they are required to pay when their invoice is calculated.

The ASIC website contains a definition of a large proprietary company.

Will the levies be tax deductible?

Yes. The levies will be tax deductible. This is consistent with the approach for other Government cost recovery models, such as APRA’s Financial Institution Supervisory Levy.

Are levies subject to GST?

No. The levies are not subject to GST.

How does ASIC allocate its funding?

Our Corporate Plan has information on ASIC’s strategic priorities and focus for the next four years. The latest plan was published in September 2017.

The Cost Recovery Implementation Statement (CRIS) outlines our budgeted costs and activities in the sectors we regulate.

The ASIC Annual Report outlines what we have achieved each year.

Will ASIC funding change as a result of industry funding?

ASIC's budget will continue to be determined by the Government as part of its Federal Budget process.

3. How are ASIC’s costs shared among the regulated population?

Regulated entities have been categorised into 48 subsectors across corporations, auditors, insolvency practitioners, credit licensees, AFS licensees and other regulated entities and individuals.

Attributing the expected costs across each subsector is done by assessing the regulatory effort required to support ASIC's vision and address the key risks set out in the Corporate Plan.

The budgeted cost of ASIC's work in each subsector is outlined in our annual Cost Recovery Implementation Statement (CRIS) to be published each year in October on the ASIC website.

4. How will existing cost recovery arrangements be affected?

The Market Supervision Cost Recovery regime ceased on 30 June 2017 and has been incorporated into the broader ASIC industry funding model from 2017-18 onwards.

5. What are fees for service?

While around 90% of ASIC's regulatory activities will be recovered through industry funding arrangements, the remaining 10% will be recovered via fees for service.

Fees for service recover the regulatory costs attributable to a single, identifiable entity. They will apply to:

• licensing and professional registration services
• processing of relief applications, and
• ASIC's formal compliance review of documents lodged by entities under the Corporations Act 2001.

New fees for service pricing take effect from 4 July 2018. Additional detail can be found in the Cost Recovery Implementation Statement (CRIS) - Fees for service.

Will ASIC publish indicative levies?

In March 2018 ASIC intends to publish indicative levies at the subsector level based on FY17-18 budget data for those subsectors where we can estimate the required business activity metrics.

In June 2018, we intend to publish indicative levies for FY18-19 for approximately 80% of regulated entities, based on FY18-19 budget data and where we can estimate business activity metrics.

For some subsectors ASIC will be not be able to issue indicative levies as the information (i.e. business operating metrics) used to calculate the levy amount is currently not available, given this is the first year of industry funding. A list of the affected subsectors and the corresponding business metric is available on the ASIC website.

Can I calculate my levy?

The method for determining the levies is set out through a combination of the ASIC Supervisory Cost Recovery Levy Act 2017 and associated regulations. We will calculate levies based on information we hold and information in returns provided by entities we regulate. Each year, after we have collected this information, we will issue a legislative instrument that sets out the total subsector population, the total business activity metric and our regulatory costs for each subsector. This information will allow us to calculate the levy payable by each regulated entity which will be invoiced in the following year after the legislative instrument passes through Parliament.

The detailed methodology for how we will calculate levies for each industry sector is outlined in Report 535 ASIC cost recovery arrangements: 2017–18.

What is the Cost Implementation Recovery Statement (CRIS)?

The Cost Implementation Recovery Statement (CRIS) is a document that ASIC will publish each year which will set out ASIC's expected expenditure on our regulatory activities.

On 6 October 2017, ASIC released its first Cost Recovery Implementation Statement (CRIS) under the new Industry Funding regime. This CRIS includes estimated costs for ASIC’s 2017-18 regulatory activities.

The CRIS will be updated each year and is a key part of ASIC’s accountability to government and industry around the transparency of our costs.

Are the figures in the CRIS likely to change?

A change in the estimated levy pool costs could result from several factors. These include a significant change in priorities and resource allocation over the year ahead for ASIC. ASIC's enforcement costs can also change due to circumstances outside our control including court processes and settlement agreements. This would flow on to how costs are allocated to industry subsectors.

Only company directors or secretaries can perform initial entity registration in the ASIC Regulatory Portal. Once the director or secretary have registered they can then invite a trusted representative such as a company employee, a compliance officer, or a registered agent to the portal to connect to their entity and assign the them required user access to view confidential information and perform regulatory tasks on behalf of the entity

The director/secretary will only ever have to register and assign access to the trusted representative or registered agent, once for their entity.

The trusted representative or registered agent, will then receive an invitation to the portal for the relevant entity and will be able to perform the required duties on behalf of the entity which they represent, including for example, the submission of industry funding business activity metrics

If your organisation is regulated by ASIC, you will need to log on to the ASIC Regulatory Portal and submit business activity metrics before 27 September 2018.  The business activity metric checklist provides you with a summary of the metrics per subsector to help you comply with your obligations.

Business activity metric checklist

Your business activity metrics are submitted via an industry funding transaction in the ASIC Regulatory Portal. You can watch a video providing step by step instructions of this transaction below.

Video: Industry funding metric submission in the portal

I am a securities dealer, how is my business activity metric calculated?

The ASIC Market Integrity Rules (Securities Markets) 2017 require market participants to provide regulatory data to a market operator in an order transmitted to an order book of that market operator. Market participants must also provide this data on a trade report made to a market operator.

Regulatory data includes, amongst other things, the “intermediary ID”. The Australian Financial Services Licence (AFSL) number of an AFSL holder is provided as the intermediary ID for each side (buy and/or sell) of the order or transaction where:

• The AFSL holder is an automated order processing (AOP) client of the market participant; and
• The market participant has an arrangement with the AFSL holder under which the AFSL holder submits trading messages into the market participant’s system as intermediary for its own clients.

Regulatory data provided by market participants to market operators is subsequently provided to ASIC for the purpose of market supervision.

ASIC also determines the volume of trading by each AFSL holder by using intermediary ID data.

You should contact the market participant(s) of which you are an AOP client if you require confirmation of the volume of trading reported to ASIC.

Are credit representatives, financial advisers and authorised representatives required to register and submit industry funding metrics ?

Only licensees (not their representatives) are required to submit metrics in respect of credit and financial services related activities.  Some representatives may be required to submit information in their capacity as a public company, a large proprietary company, a registered company auditor, registered liquidator or as a market intermediary. 'Regulated entities' are defined under the ASIC Supervisory Cost Recovery Levy Act 2017.

What are the key dates I should be aware of?

Where can I find the industry funding legislation?

The ASIC Supervisory Cost Recovery Levy Bill 2017 and the ASIC Supervisory Cost Recovery (Collection) Act 2017 came into effect from 1 July 2017.

Where can I find industry funding regulations?

The regulations contain detail about the model, including definitions and levy metrics for each sector. The regulations commenced on 1 July 2017.

• The government made a decision that registered charities are not required to pay the ASIC industry funding levy, as a result the Regulations were amended to reflect this decision.
• Therefore, recognising the unique and important role charities play in our society, the Government will absorb ASIC’s costs of regulating the charities sector.