Has your company received correspondence from the Australian Securities and Investments Commission (ASIC) requesting that it lodge or validate business activity metrics by 27 September 2018?
What is ASIC industry funding?
ASIC is Australia’s integrated corporate, markets, financial services and consumer credit regulator. In 2016, the Commonwealth Government announced a package of legislative reforms to change how ASIC is funded. The package outlined that ASIC would be funded by the entities that benefit from, or cause the need for, ASIC’s regulatory activity (rather than being funded by the Commonwealth Government).
Specifically, ASIC’s ‘regulatory costs’ (ie. the costs that ASIC incurs while undertaking regulatory activity) would be apportioned, each year, between regulated ‘subsectors’ of ‘leviable entities’ according to the amount of ASIC’s regulatory activity that each subsector accounts for.
The Commonwealth Government has stated that the aim of the legislative reforms is to:
- reduce ASIC’s reliance on Australian tax-payers to fund its operations; and
- provide leviable entities with an incentive to improve the conduct within their respective subsectors (as improved conduct will supposedly require fewer ASIC resources to monitor, and therefore result in lower regulatory costs apportioned to that subsector).
In June 2017, the Commonwealth Parliament passed:
- the ASIC Supervisory Cost Recovery Levy Act 2017 (Cth) (Act);
- the ASIC Supervisory Cost Recovery Levy (Collection) Act 2017 (Cth) (Collection Act); and
- the ASIC Supervisory Cost Recovery Levy (Consequential Amendments) Act 2017 (Cth) (Consequential Amendments Act).
Soon afterwards, the ASIC Supervisory Cost Recovery Levy Regulations 2017 (Cth) (Regulations) were created to complete the legislative framework which would govern these reforms.
Overview of Model
Apportionment of Regulatory Costs to Sub-sectors
The Regulations prescribe the following ‘sectors’:
- Deposit-taking and credit;
- Investment management, superannuation and related services;
- Financial advice;
- Market infrastructure and intermediaries; and
The Regulations then further break those sectors into ‘subsectors’ (48 in total). For example, the Corporate sector includes:
- Auditors of disclosing entities;
- Large proprietary companies;
- Public companies;
- Registered company auditors;
- Listed corporations; and
- Registered liquidators
At the end of each financial year, ASIC will apportion a percentage of its total regulatory costs (for that financial year) to each subsector depending on the amount of regulatory activity ASIC provided to that subsector.
ASIC will then recover those costs from the leviable entities within that subsector.
For example, if within a financial year ASIC incurred 1.5% of its total regulatory costs in regulating ‘auditors of disclosing entities’, then ASIC would recover the equivalent of 1.5% of its total regulatory costs for that financial year from auditors of disclosing entities.
Basic and Graduated Levies
The Regulations further outline whether leviable entities within each subsector will be imposed:
- a basic levy (or flat levy) irrespective of the size of the entity (ie. ASIC’s regulatory costs for that subsector are distributed equally among all leviable entities within that subsector); or
- a graduated levy which will include a fixed minimum levy component, plus a graduated levy component depending on the leviable entity’s size or level of business activity in their respective subsector (ie. allleviable entities within a subsector will pay a minimum levy component, and the remainder of ASIC’s regulatory costs for that subsector will be distributed among the leviable entities within that subsector depending on each leviable entity’s size or level of business activity).
Your company’s obligations
The industry funding model commenced on 1 July 2017. Given FY 2017-18 has recently closed, ASIC is currently in the process of gathering data to apportion its regulatory costs for FY 2017-18. In order to complete this process, leviable entities must provide ASIC with business activity metrics for FY 2017-18 (through ASIC’s Regulatory Portal) before 27 September 2018.
In January 2019, ASIC will invoice all leviable entities for an amount in respect of their calculated share of ASIC’s regulatory costs. Leviable entities will have 30 business days to pay those invoices.
Going forward, leviable entities will be required to report business activity metrics to ASIC for each financial year in the period of July to September immediately following a financial year. ASIC will then invoice leviable entities for their share of ASIC’s regulatory costs in January of the following year.
No action required for most small proprietary companies and not-for-profits
Small proprietary companies (that do not operate within a subsector prescribed by the Regulations) are not required to provide business activity metrics. Rather, those entities will make a contribution to ASIC’s regulatory costs at a fixed rate of $4 per year (applied as an increase to their annual review fee).
The Regulations prescribe that an entity registered under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (which regulates charities and not-for-profits) is considered an ‘exempt entity’. Exempt entities are specifically excluded from the definition of leviable entity under the Act, and therefore are not required to pay industry levies.
ASIC intends to release indicative levies each year in advance in order to assist approximately 80% of leviable entities to estimate how much their levy is likely to be for a particular financial year (based upon ASIC’s forecast budgeted costs and the number of entities within each subsector).
For example, indicative levies for FY 2017-18 indicate that:
- a basic levy of $868 is likely to apply to each large proprietary company (as defined by the Corporations Act 2001 (Cth) s 45A(3)) as ASIC budgeted $7.573m to regulate 8,724 large proprietary companies;
- a basic levy of $14,278 is likely to apply to each margin lender (margin lenders are a subsector of leviable entity that exist within the deposit taking and credit sector) as ASIC budgeted $0.297m to regulate 22 margin lenders; and
- a graduated levy which includes:
- a $4,000 (minimum levy component); and
- an estimated $0.19 per $10,000 of market capitalisation above $5m;
is likely to apply to each listed corporation as ASIC budgeted $33.959m to regulate 2,137 listed corporations.
Indicative levies for most other subsectors for the FY 2017-18 are available here.
Penalties for non-compliance
The Collection Act deals with penalties that may be applied to a leviable entity in the event it does not comply with its obligations under the Act and Regulations. Specifically, if:
- a leviable entity does not lodge or validate business activity metrics by 31 October in any financial year (or other day as determined by ASIC) that entity commits an offence.
- a leviable entity makes a false or misleading statementto ASIC which results in a shortfall of payment of a levy payable, the leviable entity is liable to a penalty of an amount equal to twice the amount of the shortfall.
- a leviable entity does not pay its levy by the final day ofthe calendar month in which the levy is due, ASIC will enforce a penalty of 20% per annum of the annual levy payable (due and payable monthly).
Further, if a levy remains outstanding for more than 12 months after the due date for payment, ASIC may seek to deregister an entity, or suspend or cancel an entity’s licence to operate (see Consequential Amendments Act which amends other various Acts where such penalties may be imposed).
It should also be noted that there is a process for entities to appeal ASIC’s decision to impose a levy or penalty. Upon application, ASIC may waive a leviable entity’s requirement to pay the whole (or part) of a levy or late payment/shortfall penalty if exceptional circumstances justify the waiver. If ASIC refuses such an application, that decision is reviewable internally. If after internal review the decision remains, an applicant may seek review of the decision at the Administrative Appeals Tribunal.
If your company belongs to a subsector as outlined in the Regulations, your company should lodge or validate business activity metrics through ASIC’s Regulatory Portal before 27
September 2018. If you are not aware of the amount ASIC is likely to invoice your company in January 2019, and would like an indication of how much this may be, you can review the indicative levies for FY 2017-18 through the link above.
If you would like Finlaysons to advise your company on what specific obligations it may have under the ASIC industry funding model, or if we can assist with any other corporate or commercial matters, please do not hesitate to get in touch with a member of our corporate and commercial team.
This Alert is intended as an alert only. It does not purport to be comprehensive advice. Readers should seek professional advice before acting in relation to these matters.