Important editorial note: this article has been altered since its original publication on the basis of new information provided direct to QED Risk Services by the regulator, ASIC.
In June, the Federal Government passed legislation that is effectively going to see ASIC become 100% industry funded. Plenty of people have mentioned it but QED thinks that no one is yet taking action and Credit Reps particularly are sadly uninformed about what they're about to be hit with.
Currently, Licensees charge a monthly fee to their Credit Representatives. These fees are generally for the cost of compliance and the legal risk of providing a third-party business with the authorisation to conduct credit activities. Other than this, there is no charge for simply being a Credit Rep.
However, in the area of "credit intermediaries" - i.e. mortgage brokers and everyone else other than lenders - the new ASIC Levy is going to be based purely on the number of Credit Reps that a Licensee has. In fact it will be based on the maximum number of Reps that the Licensee had at any given time during the financial year.
Yes - financial year - so the legislation starts NOW. The first levy bills will go out in January 2019, based on the 2017/2018 financial year. So Licensees with Credit Reps - you have started accruing this Levy already!
How much is the Levy?
There is no set answer to this question. There is a base levy payable per Licensee of $1,000 plus a variable portion based on the number of Credit Reps. The formula for the variable component is:
(ASIC's cost for regulating the sector minus the sum of the $1,000 base fees charged) multiplied by the total number of Credit Reps the Licensee had divided by the total number of Credit Reps in the sector.
Confused? Okay, let's put some numbers in the space for you. Let's say that ASIC's costs for regulating the intermediary sector in 2017/2018 come to $12 million. An ASIC report from 2016 says there are 5,100 Licensees in the sector. ASIC has also informed QED that there is a total of around 35,000 Individual and Corporate Credit Reps in the industry.
$12 million less $5.1 million (5,100 Licensees paying a base levy of $1,000 each) means ASIC's assumed nett costs are $6.9 million.
$6.9 million divided by 35,000 means a levy of $197.14 per Credit Rep in the industry.
If you are a Credit Rep of a Licensee, you can guarantee that your aggregator is going to pass this cost onto you. If you have a Corporate Credit Rep structure, then double that fee to $394.28 per year.
That's $400 you are going to get slugged that is right out of the blue and probably wasn't in your budget for this year.
This is on top of the compliance fees that you already pay your Licensee for being a Credit Rep. Let's say that's $150 per month - which is about market average. That's $1,800 per year now PLUS $400 for the ASIC Levy, a total of $2,200 per year.
Are there alternatives?
Compare that to the cost of being a Credit Licensee in your own right. The annual licensing charge to ASIC is $523 and now, with the Base Levy on top, that's $1,523 per year - about two-thirds of what it's going to cost to be a Credit Rep in our scenario above.
However, don't just think you can jump over. There are costs in getting your Credit Licence established. It's folly these days to tackle an ASIC Licence application on your own - it's become much harder than, say, in 2010 when ASIC was almost giving them away. QED's fees start at $3,500 for an ACL so that's a cost. Then there's the wait time. Part of the problem ASIC is trying to solve with this Levy is the fact that they have no resources. At the moment, a Credit Licence is taking around 3 to 4 months to be approved. You Licensee will still be hitting you up for Levy charges during those months.
All-in-all, QED thinks that this is a shocking and sudden impact on the broker industry that has been poorly thought out and poorly executed by government and Treasury. QED has had to work really hard to even gather enough information to complete this blog! What about the future? As ASIC starts collecting these fees, they could start increasing staff numbers so they can do a better job of regulating, resulting in a further increase to the Levy. ASIC is keen to point out, however, that Government will still be in charge of budgeting at ASIC and ASIC cannot unilaterally increase its budget.
Still - spare a thought for the big financial institutions. They are going to be paying a Levy for lending, for deposit products, for financial advice, for being large corporations and for their superannuation funds. That's a lot of fees.
Please don't hesitate to call us on 1300 817 662 if you have queries or concerns about what this Levy means to you or how it will affect your specific situation - or anything else for that matter.