ASIC has been urged to review its industry levy calculation and estimates process, after aggregators have been hit with a spike in fees.
Invoices have recently been sent out across the broking industry for ASIC’s supervision cost recovery levy over 2020-21.
In late December, the regulator confirmed its actual charges for the levy, with credit intermediaries to be invoiced for a base levy of $1,000 plus $184.31 per credit representative.
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The $1,000 base has stayed consistent, but the $184.31 charge per credit rep has roughly tripled from the year before, when it was $61.76.
It has also doubled from ASIC’s levy estimates that were issued last year, when the regulator indicated intermediaries would be charged around $96.55 per credit representative.
ASIC will now recover $11.3 million in costs from the credit intermediary sector, as laid out in its actual levies summary – $3.2 million (or 48 per cent) more than its budget estimates, and $4.5 million or 65 per cent more than the previous year.
Mortgage and Finance Association of Australia (MFAA) chief executive Mike Felton has expressed concerns at the divergence between the past cost, estimates and final levy.
“ASIC has informed us that the variance has resulted from greater than expected costs being incurred in the 2020/2021 year ($11.36m versus the $8.15m estimated), however we are yet to establish why the additional costs were not included in the November estimate and how actual expenditure has risen a notable 65 per cent from the $6.9m incurred in 2019/2020,” Mr Felton told The Adviser.
Peter White, managing director of the Finance Brokers Association of Australia (FBAA) called the fee hike a “bitter pill” to swallow for some aggregators.
While Mr White stated the $184.31 cost isn’t totally unaffordable, he isn’t championing the outcome.
“Obviously, everyone in the industry is going, ‘what the hell happened there?’” he told The Adviser.
“We understand that an estimate’s an estimate, but usually it’s not far off the money.”
Mr White also had spoken to ASIC. He reported that to his understanding, there had been additional items that may have occurred after the original estimates, which could have included further reforms or enforcements for the broader credit intermediary sector.
“It’s where you have done wrong and you pay for it as a shared community, amongst credit reps,” Mr White said.
“In this case, it’s a credit intermediary bucket that we’re all a part of, but doesn’t necessarily mean that brokers have done more wrong.”
In a responding statement, an ASIC spokesperson told The Adviser: “The level and intensity of our regulatory activities (e.g. supervision and surveillance and enforcement) in each of the sectors we regulate will necessarily vary from year to year.”
Greg Ashe, director of compliance consultancy QED Risk Services, which predominantly represents mortgage brokers, also has criticised the “explosion” in costs.
“How could they have got it so wrong?” Mr Ashe asked.
“The participant figures – that is the number of licensees and credit reps – in the sector have not changed appreciably since last year, so that is not the issue. The issue is solely ASIC’s costs blowout.”
In its Cost Recovery Implementation Statement that was published last year, ASIC’s focuses included implementing banking royal commission recommendations.
The list included the commencement of best interests duty for mortgage brokers, a consultation across reference checking reforms and an information sheet about new requirements for brokers to investigate misconduct and to notify and remediate affected clients.
But Treasurer Josh Frydenberg has previously flagged that ASIC’s industry funding model was set to be reviewed in 2022. He made the pledge as the government introduced temporary relief for financial advisers slashing the cost of highly criticised recovery levies for the sector.
Mr White suggested that the government probe could also perhaps consider the industry categories, to investigate where brokers may cop the costs of regulating all credit intermediaries.
“Maybe these things need to be looked at where brokers don’t get lumped in with other people, so we’re not sharing their misdemeanours, or if you like, the cost of their misdemeanours, if that be the case,” the FBAA director said.
“But if we do that, at the same time, it means there’s less people in the bucket, so the average costs go up anyhow, compared to what it could be.”
He also recommended that ASIC adjust the timing of the estimates to avoid skipping any outliers that could impact the final charge.
“I think the more important thing out of this is that ASIC needs to be confident when they give these estimates. You can’t have something that has a 100 per cent increase afterwards, that’s not acceptable from an industry standard point of view,” Mr White said.
Meanwhile, Mr Felton has pledged to keep chasing answers from the regulator.
“We will continue to have further discussions with ASIC in order to better understand what has occurred and how such variances may be avoided in future and particularly in the light of the impending industry funding model review,” he said.
Further, Mr Ashe noted the levy had consistently risen since its introduction in 2017.
In 2018-19, the charge was $42.26 per credit representative and in 2017-18, it was $16.48 per credit rep.
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