Hope that advisers won’t continue to pay for bank mistakes

The funding methodology which saw financial planners levied by the Australian Securities and Investments Commission (ASIC) for the regulator’s activities in pursuing Westpac over the provision of superannuation-related advice by bank employees is front and centre of the Government-ordered review into the ASIC industry funding model.

The Treasury has released the terms of reference of the review of the ASIC industry funding model (IFM) and they make clear that ASIC’s decision to apportion funding of its Westpac activity to financial advisers because it traversed the provision of “advice” is something which needs to be investigated.

The terms of reference succinctly deal with the obvious contradictions evidenced in ASIC’s approach to the Westpac case by stating that the review will consider “how ASIC allocates costs to sub‑sectors, with a focus on regulatory activity that impacts multiple sub‑sectors, the consequences of time lags between regulatory action and cost allocation, and the changes to sub‑sector composition, including due to firm exits”.

The reality of ASIC’ successful action against Westpac which saw both the Federal Court and the High Court determine that “general advice” provided by bank staff was actually “personal advice” was that it had everything to do with the activities of Westpac and BT Funds Management Limited and nothing to do with financial planning licensees.

However, when it came to deciding who should be levied to pay for the considerable time and costs involved in the ASIC action, the regulator decided that financial planners and their licensees should carry the cost in a higher ASIC levy because it had traversed the issue of “advice”.

The regulator made the promise that the penalties and costs extracted from Westpac and BT as a result of ultimately losing the case would be recognised and result in a lower levy in future years.

This is doubtless why the terms of reference canvass – “The types of costs and nature of ASIC’s activities that are recovered from industry, how those costs are recovered and who they are recovered from”.

“This will include considering costs recovered through levies and regulatory fees‑for‑service, but will not include a detailed examination of individual fees‑for‑service. This will also include considering whether some or all costs for certain activities such as enforcement and capital expenditure remain appropriate to be recovered through the IFM,” the Treasury documentation said.

Perhaps most importantly, the terms of reference also ask the question of whether key aspects of the design and legislative framework of the IFM remain appropriate, including in light of structure changes in parts of the industry.