Industry funding levies

This page outlines how ASIC’s regulatory costs are allocated to subsectors and how the levies are calculated for entities within the subsector.

Allocating ASIC’s costs to subsectors

ASIC’s industry funding model is an ‘ex-post model’. This means that the regulatory costs for each subsector are calculated at the end of the financial year based on the actual reported regulatory costs we expend for each subsector.

We identify and prioritise our areas of work for each year through our strategic planning framework. This framework underpins the development of our strategic priorities and supports how we allocate our resources and in turn our regulatory costs.

Our Corporate Plan sets out our strategic priorities and action for the next four years, with a focus on the year ahead. We also conduct a range of ongoing work alongside our strategic projects to fulfil our statutory objectives.

Because we cannot predict all changes in our operating environment and in the conduct of the regulated population, we maintain flexibility in our resourcing to adapt to developments. In relation to enforcement, we may necessarily have to shift or strengthen our focus in certain areas during the year and we have mechanisms, including the Enforcement Special Account (ESA), to adapt to those changes.

Table 1 sets out the industry sectors and subsectors to which we will allocate our costs.
Sector	Subsectors
Corporate (includes auditors and liquidators, which are subject to separate fees and levies)	Corporations, including: listed corporations unlisted public companies large proprietary companies, and small proprietary companies (to be charged through an increase to the annual review fee for proprietary companies from 1 July 2018). Auditors of disclosing entities Registered company auditors Registered liquidators
Deposit taking and credit	Credit licensees, including: credit providers small and medium amount credit providers, and credit intermediaries. Deposit product providers Payment product providers Margin lenders
Investment management, superannuation and related services	Superannuation trustees Responsible entities Wholesale trustees Custodians Investor directed portfolio service (IDPS) operators Notified foreign passport funds and regulated former notified funds operators Managed discretionary account (MDA) providers Traditional trustee company service providers
Market infrastructure and intermediaries	Market infrastructure providers, including: market licensees, including various types of market operators clearing and settlement (CS) facility operators Australian derivative trade repository operators exempt market operators credit rating agencies, and benchmark administrator licensees. Market intermediaries, including: market participants securities dealers corporate advisers and over-the-counter (OTC) traders retail OTC derivatives issuers, and wholesale electricity dealers
Financial advice	AFS licensees that provide: personal advice to retail clients on relevant financial products, and personal advice to retail clients on products that are not relevant financial products Note: ‘Relevant financial products’ are financial products other than basic banking products, general insurance products, consumer credit insurance, or a combination of any of these products (see section 910A of the Corporations Act). general advice only to retail or wholesale clients, and personal advice to wholesale clients only.
Insurance (includes life and general insurance)	Insurance product providers (including friendly societies) Insurance product distributors Risk management product providers Claims handling and settling services providers

Direct costs

By analysing each of our teams’ structures and outputs, and using timesheet data recorded by relevant teams in ASIC’s case management system, we determine the costs allocated to the relevant activity and subsector. These costs include direct employee expenses (i.e. the number of full-time equivalent (FTE) staff) and direct supplier costs.

Enforcement costs

In the case of enforcement, the direct costs will include the ESA appropriation (as allocated by the Australian Government). It will also include regulatory costs relating to our other enforcement activities.

We allocate costs to subsectors according to the nature of the issues involved in each enforcement and ESA matter. This means that costs for an enforcement matter may be allocated across two or more subsectors based on the nature of these issues. The allocations are decided by the relevant enforcement and regulatory teams, with processes in place to ensure appropriate deliberations and oversight regarding these allocations.

ESA costs are allocated to the relevant subsector(s) based on a three-year rolling average of ESA activity in each subsector. This approach aims to reduce the volatility of ESA costs allocated to subsectors, by easing the impact of large matters on levies.

Costs relating to unlicenced operators

We take action in relation to unlicensed conduct within the financial system. We incur costs in identifying, preventing and penalising unlicensed conduct. Unlicensed operators are not registered with ASIC and generally have not paid registration fees, nor do they pay annual levies.

ASIC action in relation to unlicensed conduct is in the interests of the relevant licensed participants in a particular subsector. Our action maintains integrity and trust in the subsector and deters competition from unlicensed entities.

These costs are allocated to the most ‘relevant’ subsector(s) (e.g. regulatory activity relating to an unlicensed individual providing personal financial advice would be recovered from the AFS licensees that provide personal advice to retail clients on relevant financial products subsector).

Costs relating to regulating emerging sectors

We undertake regulatory activities related to products and providers that are subject to a regulatory exemption or are at the regulatory perimeter. This perimeter refers to activities, which are often novel (e.g. buy now pay later), that do not sit within the existing system of licensing, registration, and supervision.

This work supports ASIC’s responsibility, alongside Government, to maintain Australia’s regulatory framework for financial services and ensure the integrity of the system overall.

These costs are allocated to ‘adjacent’ subsectors which are already licenced and regulated via levies. For example, regulatory activity relating to buy now pay later is recovered from the credit providers subsector.

Breakdown of direct costs

Overall, to provide an appropriate level of granularity of our direct costs for each subsector, we present our direct costs under the following categories:

supervision and surveillance
enforcement, and
other regulatory activities

industry engagement
education
guidance, and
policy advice.

For more information about what each activity involves, see Table 2.

Table 2: Regulatory activities subject to industry funding levies
Activity	Activity description
Supervision and surveillance	We conduct supervision and surveillance to test compliance with the laws we administer, and to promote positive consumer and investor outcomes. We may gather and analyse information on: a specific entity or range of entities a transaction, or a specific product or issue of concern in the market. To assist our supervision and surveillance activities, we may incorporate the use of technology and information technology applications that support and enhance our supervision and surveillance activities. Our activities include: making an initial regulatory assessment, as part of which we: accept breach reports or reports of misconduct, including receiving whistleblower disclosures about misconduct undertake initial inquiries and preliminary analysis, including conducting targeted supervision and surveillance (e.g. our corporate governance review) assess the nature and gravity of the suspected breach or misconduct undertake initial testing of ASIC’s jurisdiction, and decide whether further action is required and, if so, prepare handover of referral materials review, as part of which we: identify the risks of making a detailed inquiry for a single or thematic surveillance undertake stakeholder interviews and collect documentary information use ASIC’s compulsory information gathering powers (e.g. under section 912C of the Corporations Act) analyse and assess the information gathered, and develop and publish supervision and surveillance reports, and undertaking regulatory supervision, surveillance and monitoring, as part of which we: carry on our institutional supervision activities – that is, conducting ongoing monitoring and supervision, as well as surveillance, of large financial institutions accept referrals for suspected, alleged or admitted breaches and misconduct gather and analyse information and initial evidence, which may lead to an investigation and/or litigation use ASIC’s compulsory information gathering powers (e.g. under section 912C), and publish reports in response to findings of our supervision and surveillance.
Enforcement	An activity is classified as ‘enforcement’ when we consider that there has been a breach of the law. Our investigations may lead to enforcement action, including punitive, protective preservative, corrective or compensatory action. We also resolve matters by engaging with the relevant party, issuing infringement notices, seeking civil penalties or taking administrative action (such as banning). Our enforcement effort may extend to the use of technology and information technology applications that support and enhance the outcomes of our enforcement activity. Our activities include: undertaking investigations, as part of which we: accept referrals of alleged or admitted breaches and misconduct assess preliminary and detailed case theories use ASIC’s formal investigatory powers (e.g. issuing notices requiring a person to assist ASIC with an investigation or appear before ASIC for examination) obtain information and seize property collaborate and exchange information with other regulatory partners, and convert information gathered into admissible evidence administrative decision making, as part of which we prepare briefs for ASIC hearing delegates for administrative actions (e.g. banning decisions and imposing stop orders on disclosure documents) undertaking litigation, as part of which we: consider evidence and relevant legal authorities develop, obtain and assess legal expert opinions decide on the merit of the case and determine which legal remedies will be sought for criminal matters, prepare briefs for the Commonwealth Director of Public Prosecutions and support ongoing case development for civil matters, draft and settle pleadings, and attend court, and handle appeals and Administrative Appeal Tribunal (AAT) reviews, as part of which we: draft or receive an appeal notice consider evidence and relevant legal authorities develop, obtain and assess legal expert opinions prepare appeal briefs and supervise process service, and attend court and the AAT.
Industry engagement	Our industry engagement activity seeks to communicate regulatory standards and identify harms and potential harms in the market. As part of engaging with industry, we: attend industry liaison meetings and give presentations, and respond to industry inquiries and requests for information.
Education	Our educational activities aim to empower Australian investors and consumers to be in control of their financial lives. They also aim to promote the protection of consumer interests. As part of providing education, we: deliver and promote access to trusted and impartial financial information, tools and guidance for consumers and investors (especially vulnerable consumers) through the Moneysmart website, and give speeches and presentations to industry and consumers.
Guidance	We provide guidance to industry on how we will administer the law through regulatory guides, consultation papers and information sheets. It is an important tool we use to respond to structural changes and complexity in the industry. As part of providing guidance, we: develop and consult on regulatory proposals give guidance on regulatory topics to enhance industry’s understanding of their legal obligations and how ASIC administers the law draft, consult on and issue legislative instruments, and decide on novel applications for exemptions from or modifications of the law.
Policy advice	We provide advice to the Australian Government on the operational implications of Government policy initiatives and legislative change. We identify the opportunities and risks that inform our preferred position and influence law reform matters to help realise our vision. As part of providing policy advice to support the policy agenda set by the Australian Government, we: research and analyse innovation, competition and emerging harms provide proposals for law reform and assist in its development identify and plan for the impact on external stakeholders and internal capabilities, and provide submissions to parliamentary and Government inquiries on law reform issues.

Indirect costs

Indirect costs represent all costs that are not directly attributable to a specific subsector or activity, but nevertheless go toward providing internal support that is essential to teams in the course of their work. Indirect costs fall under the following categories:

Commission, legal services and risk management– this includes the work of the Commission as well as the work of legal services and risk management teams
digital, data, and technology – this includes the provision of data, digital and technology support to the organisation
corporate support– this includes enabling service functions such as finance, people & development and internal audit, and
property and accommodation services– this includes the provision and management of ASIC managed accommodation and facilities.

We allocate indirect costs based on a detailed analysis of support costs. Our analysis identifies which costs can be allocated to which supervision and surveillance, enforcement or registry team and their activities. Costs that cannot be allocated to a specific team are shared across all teams based on the number of FTE staff.

Costs to build, support and maintain our information technology systems are attributed to ASIC teams based on the number of FTE staff who use those systems. We attribute property costs and some indirect costs – such as governance, leadership and compliance costs to teams based on their FTE staff.

Once the indirect costs are allocated to regulatory, enforcement and registry teams, they are allocated to subsectors in proportion to their direct costs. Overall, enforcement makes up the largest proportion of ASIC’s activities, so subsectors with high enforcement costs relative to other subsectors will have higher indirect costs. This also means that if overall indirect costs increase year-on-year, the percentage change in indirect costs for a subsector may be higher than the percentage change in the subsector’s regulatory costs.

Capital expenditure

Capital expenditure is ASIC’s departmental capital budget (funds to meet the costs associated with the replacement of minor assets or maintenance costs that are eligible to be capitalised) and equity injection appropriations to develop infrastructure to support new regulatory responsibilities.

Similar to indirect costs, our analysis identifies which capital projects can be allocated to which supervision and surveillance, enforcement or registry team and their activities. Costs that cannot be allocated to a specific team are shared across all teams based on the number of FTE staff.

Once the capital expenditure costs are allocated to regulatory, enforcement and registry teams, they are allocated to subsectors in proportion to their direct costs. For example, if the enforcement team undertook a $10,000 project to regulate two subsectors – of which, subsector A comprised 30% of the enforcement costs and subsector B comprised 70% – the capital cost would be allocated in the same proportion (subsector A would be allocated $3,000 of the indirect costs and subsector B $7,000).

Some projects are allocated to a specific subsector. This occurs when the capital expenditure for the project is specifically for the purposes of the subsector.

Adjustments

Less costs funded by own-source revenue

We subtract any revenue we receive from our regulatory costs. This revenue is generated from sources such as sub-leasing office space to other agencies as well as the recovery of court-awarded costs.

For example, if we are successful in a matter before the courts, we will actively seek to recover our costs directly from the entity involved. The actual amount recovered will vary, as not all expenditure is recoverable (e.g. where the entity or person we took action against has insufficient assets to cover our costs). Generally, we are only able to recover costs when there is a court-based outcome. Any recoveries will be applied back to the subsector initially levied for the enforcement activity.

Adjustments for prior year

Our balance management strategy is set out in the ASIC Supervisory Cost Recovery Levy Act 2017 (Cost Recovery Levy Act) and is summarised as follows:

In allocating our regulatory costs, we must reduce our regulatory costs by the amount of any excess levy paid in relation to the previous financial year.
Similarly, where there has been a shortfall in the recovery of our costs in relation to the previous financial year, we must increase our regulatory costs by the shortfall.
We must attribute any excess or shortfall to the subsectors in which the excess or shortfall previously arose (‘Adjustment for prior year (under or over recovery)’)

Under or over collection may occur due to a mismatch in the timing of when entities are registered or deregistered and the notification of these activities. It can also occur due to other changes in the prior year’s leviable populations, costs or metrics. When the amount of levy collected in relation to a financial year exceeds or falls short of the amount of ASIC’s regulatory costs for the financial year, an upward or downward adjustment to our regulatory costs will be made in the following year.

Deriving levies for individual entities

Once our regulatory costs are allocated to each subsector, the levy payable by an individual entity is worked out using a flat levy formula or graduated formula in the ASIC Supervisory Cost Recovery Regulations 2017 (Cost Recovery Levy Regulations).

An individual entity’s levy for a financial year is equal to its share of flat and graduated levies for each subsector it is part of in the financial year. An entity can belong to more than one subsector. For more information, see our industry funding decision tree (PDF 229 KB).

Flat industry funding levies

The flat levy formula apportions our regulatory costs equally between entities in the same subsector where there is no relevant business activity metric.

For some subsectors, the flat levy formula apportions our regulatory costs between entities based on each entity’s share of actual reported business activity (the business activity metric) within the subsector. The business activity metric used to calculate the levy for each subsector is a readily available metric of business activity – such as revenue generated or the number of days in the financial year that the entity held the relevant AFS licence – that closely aligns to the expected level of oversight required.

The metric used is based on the business activity metrics provided by regulated entities between July and September each year for the previous financial year via the ASIC Regulatory Portal.

When the formula is based on the number of days in the financial year the entity was part of the relevant subsector or held the relevant licence, we have included a full-year equivalent (FYE) number of entities in the subsector to calculate the estimated levy. For example, if there are two entities in a subsector and one was part of the subsector for only half the year, the FYE number will be 1.5 entities.

Graduated industry funding levies

Under the graduated levy formula, all entities in a subsector must pay:

a minimum levy, and
an additional graduated component, based on each entity’s share of relevant activity within the subsector.

We calculate the graduated component by first reducing the total costs for the subsector by the amount to be recovered under the minimum levy. Then, we apportion the remainder of our costs between entities based on each entity’s share of total business activity within the subsector.

The metric used is based on the business activity metrics provided by regulated entities between July and September each year for the previous financial year via the ASIC Regulatory Portal.

For the purposes of calculating estimated levies, where the formula is based on the number of days in the financial year the entity was part of the relevant subsector or held the relevant licence, we have included a FYE number of entities in the subsector, to reflect the pro rata of the levy. For example, if there are two entities in a subsector and one was part of the subsector for only half the year, the FYE number will be 1.5 entities.

For some subsectors, the graduated component only applies beyond a prescribed threshold. In these cases, we will apportion our remaining regulatory costs between entities based on each entity’s share of total business activity within the subsector above the prescribed threshold.