Funding ASIC

There is nothing like an election campaign to get decisions from government. Reacting to the opposition’s campaign promise of a Royal Commission into the banks, the government has announced a plan to bolster ASIC to protect Australian consumers. An injection of $127.2m into ASIC's coffers was announced by The Treasurer and Minister for Small Business in a joint press release on 20 April 2016.

ASIC’s funding has been subjected to serious cuts in consecutive budgets over the past few years. In a perfect storm, whilst ASIC has had its funding cut, its performance has been subject to criticism and scrutiny from both commentators and those responsible for implementing the cuts.

The press release also announces that the government will introduce an industry pays funding model for ASIC which will commence in the 2018 financial year. The government claims that price signals will drive economic efficiencies in the way resources are allocated within ASIC and improve ASIC’S accountability and transparency. Can anybody explain what that means and how it will be achieved?

Interestingly, the government is exploring privatising the registry business conducted by ASIC on behalf of the government. ASIC's registry business includes oversight of business registrations, company searches and other documents. ASIC reported in its 2015 annual report the registry business generated $725m in revenue. All of this has traditionally found its way into consolidated revenue and has not been directly used to fund ASIC’s operations. ASIC received approximately $350m in appropriations from the government in 2015. The registry business has been estimated to be worth $6bn. It appears unlikely the $6bn, if realised, will be used to fund ASIC. However when as revenue stream is sold it is gone forever.

To the man in the street a regulator ensures market participants conduct themselves in the manner required by the governing law and in accordance with community expectations and prosecutes those who do not. It is hard to understand how pulling government funding from ASIC and leaving its activities to be funded by industry will result in improved regulation. Industry will wish to pay as little as possible and if their lobbying succeeds as it regularly does, ASIC will be starved of resources again.

Industry funding of ASIC appears to be the implementation of ideological and fiscal policy by the government. There is no evidence to suggest it will improve ASIC’s performance. 

A separate insolvency regulator

The regulation of the insolvency profession is divided. Personal insolvency is supervised by AFSA under the Bankruptcy Act 1966 which is administered by the Attorney General’s department. Corporate insolvency is supervised by ASIC under the Corporations Act which is administered by treasury.

AFSA has been recovering costs from creditors and insolvency practitioners since 1997 through a realisations charge on the assets realised in each administration and interest charge on interest earnt on funds held in each administration. The cost recovery only occurs from administrations that generate funds.

ASIC’s role, duties and industry coverage has increased substantially since the national regulator was established as the ASC in the early 1990s. The regulation of corporate insolvency is one of many hungry mouths to feed. Sometimes other mouths get a larger slice of the cake.

The funding of the regulation of corporate insolvency practitioners by ASIC over the years has waxed and waned based on public opinion and political reaction as a result of large scale corporate insolvency administrations. As the issue cools, the funding of corporate insolvency regulation within ASIC has historically been reallocated to the latest hot spot.

There is no visibility at this time as to how the government will implement the industry pays funding model. Treasury is presently considering how to implement the government’s policy. Corporate insolvency stakeholders must wait to hear who will pay and how they will pay. Whatever model is implemented, corporate insolvency stakeholders should not have to subsidise other regulatory activities of ASIC. 

Public confidence in the operation and regulation of the insolvency process is an essential element of a properly functioning market economy. The regulation of the insolvency law including insolvency professionals is important enough to justify its own regulator independent of both ASIC and AFSA. This new insolvency regulator could be funded through a levy on funds realised in administrations (as presently occurs in bankruptcy) in conjunction with annual registration fees.

If you have any questions in relation to this article, please contact your local RSM adviser or David Kerr.

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