The cost of regulating credit intermediaries in 2019-20 is estimated to be $10.1 million, according to ASIC, a 53 per cent increase on last year.
According to ASIC’s draft Cost Recovery Implementation Statement (CRIS) 2019-20, the financial services regulator will need to recover $10.1 million from credit intermediaries (entities that hold a credit licence authorising them to engage in credit activities other than as a credit provider, i.e. aggregators and mortgage and finance brokers) for the year 2019-20.
The cost will be covered by a minimum levy of $1,000 per entity (of which there are said to be 5,036) and then a variable amount dependent on the number of credit representatives the entity has as a proportion of the total number of credit representatives in the subsector. There are a total of 36,539 credit representatives, according to ASIC, and the indicative levy is expected to be $1,000 plus $138.68 per credit representative.
The total amount will cover enforcement ($2.6 million), surveillance ($1.9 million) and financial capability ($0.6 million), as well as industry engagement, education, guidance and policy advice.
A proportion will also be used to cover “indirect costs” such as governance, central strategy and legal costs, as well as property and corporate services, IT support and operations support.
Cost of credit reps triples
The $10.1 million is a 53 per cent increase on its costs from last year, when it recovered $6.6 million from credit intermediaries.
Last year, the levy for credit intermediaries came in at $1,000 plus $42.26 per credit representative – so this year’s indicative levy shows that the cost of credit reps has more than tripled.
However, the total cost has been estimated based on ASIC’s planned regulatory work as at the beginning of the 2019-20 year, so it does not reflect the adjusted work program brought about following the COVID-19 pandemic.
The actual regulatory costs are scheduled to be published in December 2020, with invoices issued in January 2021.
Last year, the estimated costs for credit intermediaries last year was $5.6 million, with the actual cost coming in at a million dollars over that ($6.6 million).
Those entities holding an Australian Credit Licence authorising it to engage in credit activities as a credit provider will be subject to a minimum levy of $2,000.
Credit providers that provide more than $100 million in credit contracts (other than under small and medium amount credit contracts) will also pay a variable component based on the credit provider’s share of the total value of credit contracts above the $100 million threshold provided by the subsector each financial year.
However, ASIC outlined that credit licensee levies are generally cumulative. That could mean, for example, that if a credit licensee holds authorisations as a credit provider and a credit intermediary and provides both small amount credit contracts and regular loans, they will be required to pay the levy applicable for all three subsectors. However, each graduated levy will be calculated separately and only relates to the licensee’s involvement in that activity or subsector.
ASIC outlined that, as well as continuing to monitor credit licensees’ compliance, its work in 2019-20 “will continue to promote responsible lending practices and appropriate responses to financial hardship in the credit industry” and “focus on the risk of loan payment stress resulting from inappropriate lending and changing economic conditions, with a focus on home lending and high-risk products (e.g. small amount credit contracts and consumer leasing).”
“We will identify and resolve credit licensee non-compliance and work to reduce the sale of inappropriate products and inappropriate outcomes. This includes the use of our product intervention power. This also includes further work in relation to buy now, pay later products,” the CRIS report reads.
“We will also focus on technology and innovation, and on facilitating appropriate legislative reform. In this area, we will monitor product developments, as well as engaging with new businesses through our Innovation Hub.”
Overall, ASIC estimates that it will recover $324.5 million of its $429.6 million of regulatory costs via industry funding levies in 2019-20.
The draft CRIS is open to stakeholder feedback. ASIC has acknowledged that, as “many businesses are focused on dealing with the impact of the COVID-19 pandemic at this time”, it has extended the feedback period this year to allow entities additional time to provide their comments.
Feedback on the draft CRIS can be provided over the next six weeks until 24 July 2020.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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