Senator Bragg calls for urgent financial system inquiry amid soaring ASIC levies

Senator Andrew Bragg is demanding a comprehensive review of the regulatory framework through a new Financial System Inquiry (FSI).

Speaking at an FSC event on Thursday, Mr Bragg said the existing system, implemented over 25 years ago under the Twin Peaks model, harbours significant structural issues that pose risks to the nation’s economic standing, job market, and innovation.

Mr Bragg highlighted the need to shine a spotlight, particularly on the Australian Securities and Investments Commission (ASIC), arguing that the regulatory body has strayed from its fundamental duty of enforcing corporate law, becoming more focused on self-promotion and deflecting media criticism.

“In the last financial year, it was revealed that even the Great Barrier Reef Marine Park Authority had made more referrals to the CDPP than ASIC,” Mr Bragg said.

On the advice front, the senator is particularly alarmed by the rapid increase in the levy charged to advisers.

Speaking to ifa following his address, Mr Bragg admitted that the levy system itself is something that needs to be scrutinised further.

“I’m not sure it’s the right system,” he said, and proposed a system in which the corporate regulator retains regulatory fines and uses the proceeds to finance its regulatory initiatives.

“When the industry-based funding was established, it was never designed to be bashing individual small businesses over the head with 150 per cent increases in one go. That wasn’t what it was designed to do, we also at that stage didn’t have a massive drought of advisers. There’s never been enough, but now there’s a massive drought," Mr Bragg argued.

“We’re very keen to try and alleviate the cost of financial advice because we know there’s not enough financial advice being given in the country.”

Last week, Mr Bragg asked some tough questions of the Labor government at Senate estimates.

Questioning Treasury officials over the 150 per cent increase in ASIC levies charged to advisers, Mr Bragg sought clarity on how Labor’s support for the levy increase aligns with its commitment to reduce the cost of advice.

However, Mr Bragg’s questions were met with a tense silence, the palpable tension evident even through the virtual setting.

Eventually, Treasury official Brenton Philp said: “Senator, they are two different things.”

Mr Bragg then asked: “Isn’t the government levy an input cost for those businesses that are providing financial advice?”

To this, Mr Philp replied: “Yes.”

However, he stopped short of acknowledging that this heightened “input cost” would probably result in an escalation of the cost of advice due to advisers needing to generate more revenue to cover their increased business expenses.

Need for an FSI

Speaking on Thursday, Mr Bragg said he also harbours concerns about the Australian Prudential Regulation Authority (APRA), particularly in relation to its “failure to clamp down on breaches of the best financial interests duty” among superannuation funds, and a seemingly slow response to investigating financial transactions between super funds and unions.

As such, he stressed that a new FSI could provide an opportunity to address not only the issues with ASIC and APRA but also broader concerns, including the influence of the superannuation system on the economy, tax considerations, housing challenges, and the impact of digital disruption on the financial sector.

The last FSI occurred almost a decade ago and is considered by some as instrumental in recommending reforms that significantly shaped Australia’s financial landscape.

This FSI, according to Mr Bragg, should:

• Undertake a proper review of payments which looks at economic and geostrategic matters collectively.
• Examine the tax points in the sector to ensure competitiveness and efficiency.
• Specifically look to how the financial sector arrangements may be recalibrated to help solve our great national challenge of housing younger Australians.
• Consider the influence of superannuation over the economy.
• Look for opportunities for deregulation such as duplication which exists in prudential standards and legislation – including responsible lending.
• Consider the value of standardised terms and consumer disclosures.
• Consider the overall regulatory architecture, the “regulator of regulators”, and the role of the Council of Financial Regulators.

“We need vision to capitalise upon the opportunities and maintain our base as a regional hub for financial and professional services,” Mr Bragg concluded.