House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)

General outline and financial impact

Overview

On 20 April 2016, the Government announced a package of reforms to bolster ASIC and reform the regulation of Australia's financial services sector in order to deliver better outcomes for consumers.

The reform package included a commitment to introduce an industry funding model for ASIC to commence on 1 July 2017. The proposed industry funding model will include measures to support ASIC becoming a stronger regulator through increased accountability, transparency and engagement with consumers and its regulated entities. In particular the funding model will:

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Increase accountability - ASIC will annually explain its regulatory priorities, the means by which it intends to address those priorities and the allocation of resources to each regulatory activity. The Government expects that ASIC will develop a communications strategy consistent with the recommendations of the Capability Review that clearly explains to industry and consumers its choice of regulatory tools or pursuit of particular objectives in making regulatory decisions.

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Create a richer dataset to help ASIC prioritise resources - ASIC will be required to improve its collection and use of data generated by financial entities which will assist with regulation, compliance and prioritisation by developing technological systems that are both agile and adaptable.

Date of effect: 1 July 2017

Proposal announced: 20 April 2016

Financial impact: These bills will improve the underlying cash balance by $308.7 million over the forward estimates.

Human rights implications: These bills are compatible with human rights. See Statement of Compatibility with Human Rights-Chapter 2.

Compliance cost impact: An increase of $21.1 million per annum.

Summary of regulation impact statement

Regulation impact on business

Impact: An increase of $21.1 million in compliance costs per annum.

Main points:

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The Government has been informed of the regulatory impacts of the proposed ASIC industry funding model through three stages of consultation so far. Two on the design of the industry funding model itself and one on the exposure draft legislation.

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The introduction of an industry funding model is anticipated to increase regulatory costs by $21.1 million per annum. However, this is likely to change as refinements are made to the proposed levy mechanisms for each industry subsector. Further, we expect the annual regulatory burden to decline once industry's data reporting systems are in place and ASIC is able to pre-fill forms based on prior-year returns and other data collection mechanisms.

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The increased regulatory burden arises primarily because:

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around 7,500 entities will have to establish new reporting systems to provide ASIC with additional data; and

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around 55,000 entities will have to provide additional data to ASIC each year.

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While this reporting burden has a cost, it will also have significant benefits for regulated entities. The additional data will allow ASIC to:

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better identify and respond to emerging risks in the financial sector; and

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apportion its regulatory costs across regulated entities, in line with its regulatory activities, which will eliminate or significantly minimise cross-subsidisation.