Response to Proposed ASIC Funding Model
18 September 2015
Corporations and Schemes Unit (CSU)
Financial System and Services Division
100 Market Street
Sydney NSW 2000
Re: Proposed Industry Funding Model for the Australian Securities and Investments Commission
HLK Group Pty Ltd (HLK Group) is pleased to provide this submission in relation to the consultation paper: Proposed Industry Funding Model for the Australian Securities and Investments Commission dated 28 August 2015.
About HLK Group
HLK Group aims to facilitate small financial service businesses by allowing them to operate under our AFSL to provide general financial advice, MDA services and financial planning services as corporate and/or individual authorised representatives. We ensure that our authorised representatives are experienced, qualified and are compliant in providing their services to the Australian public. Our core business is to promote a culture of compliance and client financial welfare.
Chapter 2: ASIC’s Activities
We do agree to the activities proposed to be excluded from cost recovery. However in reference to financial literacy programmes, we would assume that this would include the Money Smart website and the Financial Adviser Register (FAR). Therefore we would disagree to the additional changes for each financial adviser that is registered on the FAR as the system is designed to be self-regulated.
In reference to Table 1, this implies that the proposal entails industry to fund surveillance gathering and industry guidance.
We believe that surveillance gathering is already largely industry funded by ASIC audit inspections and surveillance programs as in accordance to Section 990B of the Corporations Act an auditor must be appointed for AFS licence holders. Unless intentions are to add further audit requirements we would view this activity in costing as redundant. Furthermore we do not believe industry funding would improve ASIC’s surveillance considering their current lack of handling of existing issues and response to whistle-blowers which is of high concern.
Guidance from ASIC is the most prevalent in its published regulatory guides (RGs). As we would consider the RGs as general policy development advised we disagree for industry to cover costs as advised it usually not appropriate to cost recover government activities as such.
We do support the consolidation of payment fees to ASIC as our internal accounting processes would greatly benefit from the joining of ASIC company registration and ASIC Connect Licensing and Registration payment and invoicing systems. However it must be clear as to the breakdown of services provided for payment as would we would appreciate ASIC’s reciprocal concern should charges be in place with no service or goods in exchange for.
In addition to reporting to ASIC, our AFSL requires us to be audited annually by an external accountant/auditor, report via membership to an external dispute resolution scheme (in our case the Financial Ombudsman Services – FOS), Austrac in relation to Anti-Money Laundering Counter Terrorism Act (AML/CTF) and APRA to report our general insurance policies written. All of which incur costs in relation to maintaining our AFSL which ASIC has the authority to issue and revoke. However we agree that these activities and costs should continue to be recovered by the current responsible agency give that it ensures their accountability and quality of services being paid for.
It has been advised that financial literacy programmes would be excluded from industry funding and therefore the costs of operating the MoneySmart website should no longer be recovered from industry. Also in consistency to our response to Question 1, where the website includes the FAR we also disagree to the charges for the addition of financial advisers which is based on a self-regulation model.
We have no comment here as we have minimal associations with trustees, insurers in superannuation, life policy funds and retirement savings accounts.
We would still support the proceeding with the planned review of ASIC’s market supervision and competition costs recovery arrangements even if the industry funding model for ASIC were to be introduced to ensure ASIC’s accountability in these activities and in consideration for impact on our client’s investments as these costs would impact inadvertently our client costs with dealing with the markets.
Chapter 3: International funding models
It needs to be considered that ASIC are an independent Commonwealth government body therefore we would believe that a mix of both industry and government funding similar to that of the NZFMA would be appropriate of which the government funded amount may be appropriated as with the SEC and the US Treasury. Questions here to be raised would be in regards to how remainder fees are dealt with i.e. remain with ASIC or to be remitted back to the Treasury.
Furthermore we would agree for ASIC to adopt annual consultation on fees and updates or changes to specific aspects of its fees policy for the coming financial year as opposed to the NZ model where levies were set and may not be updated in 3 years. We would propose this to aid in financial forecasting and budgeting which for a small business like ours happens on an annual basis and reviewed monthly.
Chapter 4: The proposed industry funding model
We do not believe the proposed methodology is appropriate for determining the levy mechanism for a number of reasons.
We do agree to the specific fee for service activities.
We do agree to the approach for calculating fees for service based on forecast as this ensures that there is certainty as to the fees payable and promotes product or service innovation.
We would suggest that ASIC needs to modify its proposed methodology for calculating fees for service by taking into consideration the size of applicants and of the complexity of the request. For example should we need to reduce our authorisations by varying our licence it would be fair to assume the cost of processing would be less than an application that is requesting the addition of authorisations. We understand though that assessing the size of each request may not be viable however implementation of a tier system should be in place.
Chapter 5: Determining ASIC’s annual funding and levies
We do not support the proposed process for determining funding for ASIC’s regulatory activities. Our concerns are that the process for determining funding would not support small- medium businesses and consultation would largely be sought from the larger corporations in industry. Furthermore for businesses of our size the impact would likely be for us to pass on these costs to our clients or the end consumers for us to be able to ensure a solvent business with sufficient cash flow.
The certainty from annual funding and levies will aid with regards to forecasting. However the large lump sum that will need to be paid annually would impede on cash flow management which is critical for small to medium enterprises as we incur additional costs at the end of financial year such as audit costs. We would suggest for ASIC should it implement industry funding to be able to offer instalment payment options either monthly or quarterly.
The proposed consultation arrangement we believe is not appropriate as it is still heavily reliant on Government consultation with minimal industry input. Furthermore the suggested response to urgent and unforeseen market events with government intervention that may be recovered in the next financial year would be undesirable as these circumstances would normally indicate tough market conditions which would take small to medium enterprises more time to recover.
Our preference is for ASIC’s fee for service to be revised more regularly than the proposed three year revision as a means to ensure fees charges are legitimately cost recovering.
The proposal thus far does not provide any details with regards how annual levies will be utilised by ASIC to ensure accountability with the industry funding model except for supervision which is currently on a superficial level. Our suggestions would be for further ASIC services to improve open communication channels between companies and financial licensees and the regulator.
Given advancements in technology we would think that the panel should be able to incorporate all parties that would be funding the industry by incorporating online polling for decisions and reviews. Our concern with a limiting panel is that it would be biased towards the larger corporations that pay higher levies as opposed to parties that are interested in improving and ensuring the integrity of the industry.
Chapter 6: Phase-in arrangements and levy administration
We do agree to the phasing in of cost recovery levies, however we would suggest a phasing in period of 5 years as opposed to 3 years so the industry has an understanding as to how the levies raised will be utilised by ASIC and to ensure accountability.
We do not see it as appropriate to implement fees for recovery of ASIC’s costs from 1 July 2016 as annual budgets have been submitted to the board and auditor of which have not accommodated for these additional fees. We would see it more appropriate to set industry funding to start the following financial year once intention of implementation is confirmed then budgets submitted would incorporate these costs.
The lump sum levy payment arrangement with regards to the administration arrangement is not desirable for small to medium businesses as it does impede on cash flow which is critical to be managed.
Entities entering the market part way through the year should be levied on a pro rata basis.
We would believe it would be appropriate for over or under collection of levies to reduce or increase levies payable for the next year however this needs to be informed to levy payers early to ensure these are incorporated in annual budgeting.
We would recommend an instalment program to allow for monthly or quarterly payment options of annual levies in order to allow small to medium enterprises further flexibility in managing cash flow.
Attachment A – Funding Model for Companies
As a small business, the fixed levy intended to be charged for a company is negligible to impact innovation or impede operations.
Attachment C – Funding Model for AFS Licensees
We do not support the proposed arrangement for AFS Licensees as this will increase our compliance costs dramatically without any foreseeable benefits to be received by the company. Furthermore these levies will not see any alleviation to our existing compliance costs incurred to our external consults and legal which we regularly seek services from.
We do not believe these arrangement would allow AFS licensees to be competitive neutral as these costs we foresee will be passed down to investors and end clients via higher fees and service charges, thus standard industry pricing levels will increase
The proposed tiering arrangements we believe does not support the growth of AFS licensees specifically in regards to the additional charges per adviser on the Financial Adviser Register. As per RG146 it is the licensee’s responsibility to ensure advisers are sufficiently qualified which already incur costs for courses and ongoing CPD training. The incurring of these additional costs we do not see any benefit as charges were already made when the adviser is added to the register.
We believe these proposed levy arrangements would restrict innovations rather than support it as the arrangements penalises licensees that hold a wide range of authorisations of which new financial innovations usually require. For example the development of robo advisers tend to require an array of financial planning authorisations as well as MDA services.
The proposed arrangement we do not view as a support for small business as most of the authorisations our licence is relevant incurs a fixed levy such as MDA services, financial advisory and securities dealing which is irrelevant to tiering.
Will the proposed levy arrangements for AFS Licensees support access to financial services in regional Australia? If not, why not?
We do not have a significant client base in regional Australia to be able to advise accordingly.
We do not operate as an RE or superannuation trustee to be able to advise.
Attachment G – Proposed Fee Schedule
We do not agree to the fee in regards to variation of licence conditions as we believe there has to be a consideration to the type of variation for example removing authorisations we would think not be susceptible to such a high fee in comparison to a variation that adds authorisations.
Attachment I – Definitions of industry sectors and subsectors
We do not agree to the proposed definitions of industry sectors and sub-sectors as it will restrict innovation as these creations tend to require multiple authorisations such as the example robo-advising.
Furthermore the divisions are inconsistent in the manner where some categories are based on client based (wholesale vs retail) and others on product of which some categories overlap, which will mean additional charges.
If you have any queries or comments in relation to the content of our submission, please contact HLK Group’s Compliance Manager, May Tan, on (02) 8249 4338 or by email firstname.lastname@example.org.
Group Compliance Manager