Ruth Neal: Who pays for ASIC?

Dentons partner and regulation expert Ruth Neal explains how ASIC’s recently announced cost recovery framework will affect your business

ASIC’S NEW cost recovery framework, first announced by the government in April 2016, has now been finalised. From 1 July 2017, all entities regulated by ASIC will be required to pay a levy to recover the costs of ASIC’s regulatory activities for their industry sector.

The levy that applies to an entity will depend on ASIC’s regulatory costs for the industry subsector within which that entity operates, and the entity’s size and/or level of activity within that subsector.

Flat levies will be applied in subsectors where ASIC’s regulatory costs are approximately the same for each regulated entity. Graduated, or variable, levies will apply in subsectors where ASIC’s regulatory costs vary across the entities within that subsector.

ASIC has indicated that the first invoices in relation to regulatory services provided in the 2017/18 financial year will be issued in January 2019.

Who in the credit industry is affected?
The regime establishes subsectors for ‘credit intermediaries’ and ‘credit providers’.

The credit intermediaries subsector is made up of all entities that hold an Australian credit licence authorising them to engage in credit activities other than as credit providers. The majority of these entities will be finance brokers. However, servicers and other licensed intermediaries will also be levied under this subsector.

The subsector for credit providers covers all credit licensees who are authorised to engage in credit activities as credit providers.

These will include lenders, as well as credit licensees who conduct other types of business but also hold credit provider authorisation under their licences.

How does the levy apply to credit intermediaries?
The levy applying to credit intermediaries will be $1,000 plus a variable amount calculated by reference to the number of credit representatives the entity had at the end of the relevant financial year as a proportion of all credit representatives in the subsector. If the credit intermediary has appointed no credit representatives, a flat levy of $1,000 is payable.

This approach means that the way ASIC’s costs are attributed will vary depending on how a credit intermediary’s business is structured. For example, an aggregator whose members are appointed as the aggregator’s credit representatives will pay a graduated levy according to the number of those members. However, an aggregator whose members hold their own Australian credit licence will pay only the flat levy, and each of that aggregator’s broker members will be required to pay their own levy as a licensee.

It will be interesting to see whether this difference results in aggregators with credit representatives charging a fee to their broker members in order to recoup the levy they have paid for them.

How does the levy apply to lenders?
All credit providers have to pay a minimum levy of $2,000. A credit provider that provided more than $100m under credit contracts in the financial year will be required to pay an additional amount calculated by reference to that credit provider’s share of the total value of credit contracts above $100m provided by the subsector in the financial year.

Small-amount credit contracts are excluded from the above calculations. Lenders that provide credit under small-amount credit contracts are separately levied in that capacity, by reference to their share of the total value of small-amount credit contracts provided by that subsector.

Credit licensees may wish to review their authorisations with a view to rationalising any that are no longer required

How does the levy apply to an entity with authorisation to act as both a credit provider and a broker?
An entity that falls within multiple subsectors will be levied for each of those subsectors.

Accordingly, a broker with authorisation to also act as a lender will pay an additional $2,000 as a minimum levy to retain that authorisation, and an additional levy if it makes loans in excess of $100m in a financial year. A lender that also holds a broking authorisation will pay an additional $1,000, plus an amount for each of its credit representatives.

Credit licensees may, therefore, wish to review their authorisations with a view to rationalising any that are no longer required.

Ruth Neal is a partner in Dentons’ (previously Gadens’) Financial Products and Services team. She specialises in consumer credit, financial services regulation, licensing, privacy and credit reporting, anti-money laundering, payment systems and unfair contract terms.