A proposed funding model for corporate regulator ASIC has come under fire by consumer groups who say the model could lead to a weaker and less effective regulator.
In a submission to Treasury, the consumer groups say that the proposed model gives industry too much say over the body designed to police them. The groups are recommending that the proposed changes instead focus on giving ASIC the funding it needs to do its job.
The joint submission from nine consumer advocacy organisations including Consumer Action Law Centre, CHOICE and National Seniors supports moving ASIC to an industry funding model, but opposes the model proposed by Treasury’s consultation paper.
The submission argues that the proposed funding model falls short because it does not ensure ASIC will have adequate funding to fulfil its consumer protection role, and because it does little to improve the stability of funding. The groups argue that this funding model may in fact reduce the amount of money ASIC has for regulation and enforcement.
Consumer Action Law Centre CEO Gerard Brody said: “The Financial System Inquiry panel recommended an industry funding model because they accepted that ASIC needed more funding and better tools. That objective is nowhere to be seen in the proposed model.” “There is little point in moving ASIC to an industry funding model unless it guarantees that ASIC will end up with more money to spend on regulation and enforcement, and more stability of funding. If they end up with less funding and less stability as a result, a weaker ASIC will help no one,“ said Brody.
CHOICE CEO Alan Kirkland said: “We have years’ worth of official investigations and reports that show that ASIC needs additional funding in order to protect consumers from the worst elements of the financial industry.
“The proposals put forward in the consultation paper would not guarantee a strong, consumer-focused regulator. Instead, some options would lead to ASIC spending significant resources responding to industry concerns. Funding levels, particularly for crucial consumer protection work, should be determined by consumer need or strategic goals, not industry whim,” said Kirkland.
National Seniors CEO Michael O’Neill said: “Superannuation has seen financial risk shift to individuals.
“The corporate watchdog must become much more consumer-focussed. And, to be effective, it needs bigger teeth,” said O’Neill.
The submission also argues that the model could undermine ASIC’s independence by allowing business to influence ASIC’s overall funding and where ASIC spends its resources.
The joint submission recommends that:
- any proposed model should explicitly state an intent for ASIC to have more resources to regulate problem sectors than it currently has with funding to remain, at minimum, consistent with the Consumer Price Index;
- funding should be reviewed every three years (as recommended by the FSI final report) rather than annually; and
- the industry consultation process should be limited to technical matters like calculation of levies, and how the levy should be spread across the industry. Consultations should not be permitted to question ASIC’s assessment of sectoral risk or total amount of the levy itself. This will limit the cost of consultation and protect ASIC’s independence.
Notes for editors:
The submission is signed by:
Care Financial Counselling Service and the Consumer Law Centre of the ACT
Consumer Action Law Centre
Consumer Credit Legal Service WA
Financial Counselling Australia
Financial Rights Legal Centre
Hobart Community Legal Service
Indigenous Consumer Assistance Network
National Seniors Australia
Key points in the joint submission are that:
- the proposed industry funding model will not provide ASIC with more adequate or more stable funding than it receives now;
- the model should be revised to explicitly state an intent for ASIC to have more capacity to regulate problem sectors than it currently has;
- ASIC will need to receive new funding to cover new costs of implementing an industry model;
- funding should be reviewed every three years (as recommended by the FSI final report) rather than annually;
- an industry funding model should mean that all of ASIC’s operations, apart from a few limited and well-reasoned exceptions, are funded by industry;
- an industry funding model should also be used to provide funding for financial counselling services and specialist financial services community lawyers;
- financial literacy programs should be funded by industry;
- certain elements of the industry consultation proposed in the consultation paper would create more cost than benefit and, unless tightly controlled, pose a risk to ASIC’s independence;
- ASIC is already subject to a range of accountability mechanisms, and a shift to an industry funding model does not, in itself require additional accountability;
- we have particular concerns around the Cost Recovery Implementation Statement and the Cost Recovery Stakeholder Panel proposals;
- if the Cost Recover Stakeholder Panel is established, it must have equal consumer and industry representation;
- ASIC’s Consumer Advisory Panel should be given an opportunity to contribute to the risk assessment process.
Treasury’s consultation paper can be found here: http://www.treasury.gov.au/consultation/proposed-industry-funding-model-for-the-australian-securities-and-investments-commission
The Financial System Inquiry final report found that ASIC lacked stable funding, and that both industry and consumer advocates felt ASIC was not adequately funded to carry out its consumer protection mandate. The Inquiry considered that giving ASIC ‘more predictable funding’ was one of the main benefits of an industry funding model.[i] The Inquiry panel felt that the current funding models ‘do not promote regulator independence and accountability’ but these would improve if funding was ‘based on periodic funding reviews rather than annual Government decisions’.[ii]
[i] Financial System Inquiry, Final Report, p 247-248, 253.
[ii] Financial System Inquiry, Final Report, p 248