"Hurry Up and Wait": Cost, complexity and service standards
Earlier today, I was contemplating the Treasury Consultation Paper that's proposing significant (and necessary) changes to the cost of ASIC's services. These regulatory tweaks are intended to supplement the industry funding model that commenced on 1 July 2017 (REP 535).
As you know, the industry funding model commenced on 1 July 2017 and the changes were designed to ensure that those who create the need for, and benefit from, increased regulation (and increased regulatory attention) bear the costs of these benefits.
In essence, some of the costs of ASIC’s activities will now be recovered through a combination of "ongoing levies on regulated entities and individual fees for user-initiated regulatory functions (such as licence applications)." The costs associated with "user-initiated regulatory functions" is the subject of the Consultation Paper.
From 1 July 2018, ASIC will be able to recover regulatory costs that are directly attributable to a single, identifiable, entity. The very idea of a user-pays model may unsettle Bank shareholders, but the proposal is not retrospective. Neither is it punitive. It's simply a debt recovery mechanism applied to:
- license applications and variations;
- professional registration services;
- processing of relief applications; and
- Formal review of documents lodged with ASIC by regulated entities.
In our view, the proposed costs are fair and reasonable. Nevertheless, we'd still advise any client contemplating self-licensing in the future to act now.
If the proposals in the Consultation Paper become effective, it will cost aspiring Licensees:
- $1,798 to $4,624 to apply for an Australian Credit Licence;
- $1,156 to $2,826 to vary the conditions on their Australian Credit Licence;
- $2,233 to $7,537 to apply online for a retail Australian Financial Services Licence;
- $1,488 to $5,025 to apply online for a wholesale Australian Financial Services Licence;
- $3,349 to $11,305 to lodge a paper-based application for a retail Australian Financial Services Licence;
- $2,233 to $7,537 to lodge a paper-based application for a wholesale Australian Financial Services Licence;
- $1,364 to $3,210 to apply online to vary their retail AFSL ($2,047 to $4,815 for paper applications); and
- $930 to 3,071 to apply online to vary their wholesale AFSL ($1,426 to $2,047 for paper).
There are an extensive list of charges listed in Schedule A of the attached Consultation Paper.
While I'm sure we'd all agree it is reasonable for simple functions to cost less than complex ones, the Consultation Paper doesn't provide any useful definitions, beyond stating that
"complexity relating to AFS applications will be determined dependent on the client type and the services and products selected when applying".
While you're pondering what ASIC may consider complex, (SMAs, robo-advice or traditional financial planning), remember that you only have until 15 December 2017 to submit your feedback to the Consultation Paper.
While Treasury would probably welcome receiving passionate views on a range of topics, we note that they're particularly interested in receiving feedback on:
- the proposed fees-for-service model;
- methods of ASIC stakeholder engagement and accountability; and
- competition and innovation aspects.
The practical solution to these proposed charges might simply to lodge your AFSL/ACL application immediately. That would appear to be a prudent solution, but you need to appreciate that in their recent email to "Licensing Stakeholders", ASIC confirmed changes to its service charter for licensing applications.
Under their updated service charter, ASIC aspire to make licensing decisions
- within 150 days of receiving a complete application in at least 70% of cases (previously 60 days); and
- within 240 days of receiving a complete application in at least 90% of cases (previously 120 days).
Whether the change is the result a shift in focus or simply ASIC's decision to apply "an increasingly robust and risk-based approach to its assessment of licence applications", it's likely that any new application will face significant delays.
Given that this communication simply confirms industry observations, it's neither novel nor surprising. We've long counselled our clients (and other prospective applicants) to expect delays of six to eight months. Variations, in our experience, are not significantly quicker but we all benefit from ASIC's decision to implement a more rigorous review process.
Bear these issues in mind if you're contemplating self-licensing, and seek advice before you commence any action.
Alternatively, if you have any specific questions for ASIC, write to firstname.lastname@example.org