Compliance costing $100,000 to $500,000 a year

Mike Taylor

Managing Editor and Publisher

4 August 2023

Financial planning and accounting firms are having to spend between $100,000 and $500,000 a year on internal compliance staff to meet the complexities of Australia’s financial services legislative regime.

A joint submission from the major accounting and financial planning groups has told the Australian Law Reform Commission (ALRC) that they agree that the “existing legislative framework for corporations and financial services regulation is unnecessarily complex, fails to communicative fundamental norms and hinders compliance”.

The submission, signed off by the Financial Advice Association of Australia, the SMSF Association, CPA Australia, Chartered Accountants ANZ and the Institute of Public Accountants (IPA) has urged prompt action to address the issues.

“Without being able to locate, understand and apply relevant provisions with certainty, participants are at risk of failing to comply with their obligations. As a result, participants are investing heavily in their compliance functions, with many spending between $100,000 and $500,000 each year on internal compliance staff alone,” it said.

“The complexity of the existing legislative framework is also arguably adding to the cost to regulate the sector, even with declining financial adviser numbers over the past five years. This is evidenced by increasing levy charges to retail financial advice sector each year under the ASIC Industry Funding Model since implementation.

“Given the Government is seeking to ensure Australians have access to reliable and affordable advice3, reform is crucial to address the unnecessary compliance costs being incurred by financial services participants, which in turn is driving up the cost of accessing financial advice.”

The submission said the joint associations strongly supported the ALRC’s proposals to investigate how to simplify (by reframing and restructuring) the financial services law.

“Simplification will reduce compliance costs, and in turn support the objective of improving the access of quality, affordable financial advice,” it said.

“The Joint Associations also support that these recommendations and proposals consider how existing legislation can be structured and framed to facilitate future reforms, including those arising out of the Quality of Advice Review.”

“We believe this review provides an immediate opportunity for the Government to consider how the recommendations and proposals can be incorporated into its roadmap for financial advice reform. The need for reform is urgent. We encourage the ALRC to convey to government the clear wider economic benefits, and therefore urgency, of simplifying the financial services laws.

“It is our expectation that a simplified financial services regulatory environment will lead to a more efficient and cost-effective financial services industry. It is reasonable to assume that retirement savings for many will be higher because the cost savings from lower compliance costs will flow through to increased superannuation and investment balances.”