Terms of Reference for the Review of the Australian Securities and Investments Commission Industry Funding Model

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Purpose of the Review

The Australian Securities and Investments Commission (ASIC) Industry Funding Model (IFM) commenced in July 2017, following a recommendation of the Financial System Inquiry that the Government introduce a cost recovery model for ASIC.

The IFM is intended to meet the Australian Government’s 2015 Charging Framework1 objectives, requirements and Charging Policy Statement.2

In addition, Governments’ long‑standing position is that cost recovery fees and levies attributable to regulated activity are considered as a funding mechanism prior to statutory charges (taxation) or budget funding.

The IFM determines which costs incurred by ASIC are recovered from which regulated sub‑sectors, such that the cost is met by entities in the sub‑sectors that create the need for regulation. Prior to the introduction of the IFM, ASIC was primarily funded by taxpayers through government appropriations. Costs are recovered in proportion to the costs incurred by ASIC in respect of each regulated sub‑sector. Under the IFM, costs are recovered through a combination of cost recovery levies, cost recovery regulatory fees‑for‑service, and statutory levies/charges.

The Government is committed to maintaining appropriate industry funding arrangements for ASIC. Treasury will lead the review in consultation with ASIC, Department of Finance and the Department of the Prime Minister and Cabinet to ensure the settings of the IFM remain appropriate in the longer term.

It is appropriate to review the IFM at this point given it has now been in place for five years, and over this period there has been substantial regulatory and structural changes within industry sectors resulting in increased cost pressures within certain sub‑sectors.

The Review will be forward looking and focused on identifying any changes to the IFM that may be required to ensure the settings remain appropriate.

Scope of the Review

  1. The Review will consider and, where appropriate, make recommendations regarding:
    1. The types of costs and nature of ASIC’s activities that are recovered from industry, how those costs are recovered and who they are recovered from. This will include considering costs recovered through levies and regulatory fees‑for‑service, but will not include a detailed examination of individual fees‑for‑service. This will also include considering whether some or all costs for certain activities such as enforcement and capital expenditure remain appropriate to be recovered through the IFM.
    2. How ASIC allocates costs to sub‑sectors, with a focus on regulatory activity that impacts multiple sub‑sectors, the consequences of time lags between regulatory action and cost allocation, and the changes to sub‑sector composition, including due to firm exits.
    3. Changes in levy amounts since the commencement of the IFM; with a focus on those sub‑sectors that have faced significant increases in levies, volatility in levies between years, and variance between estimated and actual levies. This will include considering the impact of the cost burden on different types and sizes of regulated entities.
    4. Whether key aspects of the design and legislative framework for the IFM remain appropriate, including in light of structural changes in parts of industry. This will include considering whether changes are required to any sub‑sector definitions and/or levy metrics, and whether any opportunities exist for simplification.
    5. The flexibility of the IFM to respond to changes in industry, including emerging industry sectors.
    6. The suitability of transparency and consultation mechanisms, including the Cost Recovery Implementation Statement (CRIS), and how ASIC could improve the accuracy of its estimates of costs to sub‑sectors.
  2. As relevant, the Review will have regard to:
    • The level of funding recovered from industry since the commencement of the IFM.
    • The temporary levies relief provided to personal financial advice licensees in respect of 2020‑21 and 2021‑22.3
    • The Australian Government Charging Framework, noting Governments’ long‑standing position that fees and levies consistent with the Framework should be considered prior to considering other funding options.
    • The regulator costing reviews being undertaken by the Department of Finance.
    • The impact of any potential changes to the IFM on the incentives faced by ASIC and regulated entities.
  3. The Review will not assess or make recommendations on:
    • ASIC’s role and regulatory remit.
    • ASIC’s performance.
    • The appropriate aggregate level of funding for ASIC.
    • How ASIC allocates its resources to deliver on its mandate.
    • Registry fees currently collected by ASIC, which are not within the scope of the IFM.

1 The Australian Government Charging Framework incorporates the Australian Government Cost Recovery Guidelines.

2 “Where specific demand for a government activity is created by identifiable individuals and groups, they should be charged for it unless the government has decided to fund the activity. Where it is appropriate for the Australian Government to participate in an activity, it should fully utilise and maintain public resources, through appropriate charging. The application of charging should not, however, adversely impact disadvantaged Australians.”

3 2021‑22 MYEFO measure ‘ASIC Industry Levies – fee relief’.