Risk assessments for industry funding levies and fees for service
This page outlines the risk assessment for industry funding levies and fees for service and mitigations of the risks identified.
Industry funding levies
We have assessed the cost recovery model as high risk under the Australian Government Regulatory Charging Risk Assessment.
Because of the diversity of entities and activities that we regulate, which can change over time, many methods are required to allocate our regulatory costs, and these may need to be updated and amended as circumstances change. The effectiveness of the model is dependent on collecting complete, accurate and timely information from the entities we regulate.
We have set out the potential risks arising from this model and how we will mitigate them in Table 1.
Table 1: Mitigation of risks arising from the industry funding levies
|Volatility in year-to-year bills||The industry funding model will recover the actual costs we expend during the financial year to undertake our regulatory activities. This ensures that each subsector is only levied for the actual cost of regulating that subsector. However, this also means that each entity’s invoice will vary from year to year, according to changes in our priorities and resource allocations.
As part of our strategic planning process, we use a threats, harms and behaviours framework to better identify, describe and prioritise actual and potential harms to consumers, investors, and fair and efficient markets. This information is used to support how we plan our regulatory actions and allocate our resources for the year, which is reflected in the allocation of regulatory costs to each subsector. Our strategic planning process should assist stakeholders by signalling at an early stage the cost drivers for the different subsectors that will be reflected in the Cost recovery implementation statement (CRIS) each year. The outputs of the process are communicated through our strategic priorities in our corporate plan.
The actual costs from year to year may vary as a result of the change in strategic focus over time or new issues or misconduct that arises during the year. This affects the level and intensity of our regulatory activities (e.g., supervision and surveillance, and enforcement) in the various subsectors we regulate. Changes in our enforcement activity are likely to be a key driver in volatility year-to-year.Each year, we will publish the CRIS and the estimated levies for the coming year, along with the annual dashboard report that sets out the actual costs for each subsector for the previous year. We do this so that stakeholders will be able to understand the reason underpinning the levies for each subsector that we regulate.
|Levies invoiced differ significantly from the estimates provided due to changes in our operating environment||Our strategic planning process (see the row above) should result in a more reliable estimate of the allocation of regulatory costs for the financial year. However, we cannot prevent change in our operating environment (e.g. the outbreak of a pandemic) or the conduct of our regulated population between the time the estimate is provided and the time the levy is invoiced.
We strive to be strategic and agile so that we can respond rapidly to changes in our operating environment during the year, including changes to threats, or emerging threats, that have or may cause harm. As our operating environment changes over time, so will the allocation of regulatory effort and costs to different subsectors. In the case of our enforcement activities, matters may change in nature as they progress through the stages of investigation and litigation. For example, enforcement expenditure may be higher than expected due to greater demand for staff and external service providers, or lower than expected as a matter ends. As a result, the evolving nature of enforcement activity can be difficult to estimate.
In 2021–22 we started to incorporate more up-to-date actual enforcement costs into our estimates for the year up to a particular point in time. We anticipate that this may reduce the variance between our estimated and actual costs. We will continue to explore ways to improve our estimates.
We will publish our annual dashboard report as soon as practicable to give our regulated sectors as much advanced notice of these changes as possible. The annual dashboard report will provide transparency in how the funding has been spent and the regulatory activities that have been undertaken.
|Over or under collection of levies||Our balance management strategy is set out in the ASIC Supervisory Cost Recovery Levy Act 2017 (Cost Recovery Levy Act). Each year we must reduce our regulatory costs by the amount of any excess levy paid in the previous financial year. Similarly, where there has been a shortfall in the recovery of our costs for a previous financial year, we must increase our regulatory costs by the amount of the shortfall.
We must attribute any excess or shortfall to the subsectors where the excess or shortfall previously arose. This will ensure that, if there is over or under recovery, it is transparent, and the adjustments are equitable.
|The introduction of new subsectors during the financial year||The introduction of new subsectors will affect the allocation of costs between subsectors and the levy for individual entities.
If the Australian Government determines that a new subsector should be introduced to the industry funding model, the Government must amend the ASIC Supervisory Cost Recovery Regulations 2017 (Cost Recovery Levy Regulations) and undertake appropriate industry consultation (as required by the Legislation Act 2003).
|Failure to collect sufficient information from entities to correctly apportion our regulatory costs||Each regulated entity is responsible for:
This information will be used to determine each entity’s share of our regulatory costs. If some entities fail to submit this information, or provide false information, then all entities in that subsector may be levied the wrong amount.
Business activity metrics are due to be submitted between July and September of each year. We communicate with industry to ensure that they are aware of their obligation to submit their activity metrics. We will also assist, where possible, by pre-filling the reporting forms with information we already hold.
The penalty provisions of the ASIC Supervisory Cost Recovery Levy (Collection) Act 2017 should also ensure industry is motivated to report accurate information so we can correctly allocate our costs. It is a criminal offence to fail to comply with the obligation to submit business activity metrics on the ASIC Regulatory Portal by the due date. It is also an offence to submit misleading information.
If an entity fails to provide the required information or we are not satisfied with the information provided, we may give an entity a default notice stating the amount that, in our opinion, is the levy payable by the entity for the financial year. That amount is taken to be the levy payable by the entity for the financial year.
Fees for service
We have assessed the fees for service model as medium risk under the Australian Government Regulatory Charging Risk Assessment.
Charging a fee for the lodgement of forms with ASIC is not new. There is a change, however, in the complexity and materiality of those fees. Overall the setting of the fees for service and the subsequent collection is moderately complex.
We have set out the potential risks arising from the fees-for-service model and how we will mitigate those risks in Table 2.
Table 2: Mitigation of risks arising from the fees for service
|The perception that the model lacks transparency about the basis of the fees||Information about fees for service and the methodology for calculating the fees is included in this CRIS and will be published in future versions of the CRIS.
In addition, we will review and consult on our fees every three years to ensure that the fee amounts reflect ASIC’s efficient costs. Consultation may need to occur earlier if there is an unforeseen change to the work required to provide a particular fee for service activity or if there appears to be a material variation between the actual costs of undertaking the activities and the fees charged.
|The fees for service may not match our regulatory costs||Under our fees-for-service model, the fees payable may not match our exact costs in all cases because of the ex-ante nature of the model – that is, the fees are based on forecast costs and historical workflow analysis, rather than the actual cost of providing the service. This is particularly likely for fees-for-service activities that can vary widely in their complexity, such as a notice of changes to operating rules. We will tier these fees based on the complexity of the application to more accurately reflect our regulatory costs.
We will review the fees to ensure they are aligned with regulatory costs.
|Uncertainty about the classification of tiered fees||We made ASIC (Fees—Complexity Criteria) Instrument 2018/578, which specifies the criteria for whether certain applications and notices are of low, medium or high complexity for the purposes of fees for service. The instrument enables applicants to understand which ‘category’ they fall under, and therefore which fee they will be expected to pay.
Applicants for a market licence will also be directed to contact a member of our Market Infrastructure team for a preliminary assessment of complexity.
|The tiered fees could result in some entities being subject to a large increase in fees if they fall within the complex category||The Australian Government Charging Framework includes a Charging Policy Statement that underpins all Australian Government charging. It provides that ‘where specific demand for a government activity is created by identifiable individuals or groups, they should be charged for it unless the Government has decided to fund that activity’: see Australian Government Charging Framework: Resource Management Guide No. 302.
The tiered fees are designed to comply with this principle. We can apply tiered fees to reflect our regulatory effort where there is considerable variance in the actual process or assessment. This will ensure: