Australian government accused of "double dipping" into A$680m ASIC fee chest

Greg Medcraft, ASIC Chairman
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The federal government is considering "double charging" companies for A$260 million worth of annual regulatory fees under its proposed user-pays model for the Australian Securities and Investments Commission (ASIC), sources have revealed.

The proposed cost recovery model is designed to replace the arrangement whereby ASIC collects $680 million in annual registry fees and other charges on behalf of the government and pays the money into consolidated revenue. ASIC then receives around half of the money back each year in budget appropriations.

Former senator Mark Bishop, who was chairman of the Senate Inquiry into the Performance of ASIC, said his inquiry's report strongly supported the introduction of a cost recovery model as registry fees were a poor proxy for the regulator's workload. It was clear, however, that registry fees needed to be reduced in tandem. Recommendation 51 of the inquiry's final report said these fees should be brought "in line with the fees charged in other jurisdictions."

"If industry is going to pay the full cost of its own regulation then there is little justification for charging businesses and consumers for services that have already been paid for. You can't have double dipping," Bishop said.

The government is undertaking a feasibility study on a possible sale or float of ASIC's company registry arm, which could raise between A$1 billion and A$6 billion, depending on the level of fees that a purchaser is able to charge.

Bishop said any reduction in registry fees would lower the potential sale price of the business. "Why would anyone want to purchase this registry if they're not able to recover an income stream going forward?" he said.

The government has been non-committal about its position on Recommendation 51 from the ASIC inquiry. In its official response paper the government simply said it had "noted" this recommendation. "The Australian Government will consider this recommendation as part of its broader response to the Financial System Inquiry (FSI)," the paper said.

The FSI handed down its final report in December 2014.

A spokesman for Josh Frydenberg, the assistant treasurer, said the government "has not made any decision about future registry fees." Frydenberg declined to comment further on the allegations of possible "double charging" of ASIC fees.

Corporate transparency 

Kevin Davis, one of five panel members on the FSI, said the decision on pricing for ASIC's company data would be a significant one for corporate transparency. Davis, professor of finance at the University of Melbourne, said entrenching high levels of fees could affect academics, activists, businesses and citizen journalists. 

"It's a situation where you have to collect this information so the question then becomes should you view it as a public resource that should be made available to people or do you see it as a revenue opportunity? The downside of it being seen as a revenue earner is that you reduce the sensible usage of it," Davis said.

The Australian fees for company searches and other registry-related charges are some of the highest in the world, said Jeffrey Knapp, lecturer in accounting at UNSW Australia. Knapp said Australia's decision to put company information behind a paywall had damaged corporate transparency and academic research. In addition, he said the fees for ASIC's corporate work represented a hidden tax on Australian businesses, which made the country less competitive and less attractive as a place to do business. 

"I agree with Malcolm Turnbull's intelligent assessment when he said 'it is really regrettable that ASIC's data is behind a paywall'," Knapp said. "Only someone with the wrong priorities would think that putting public information about companies behind a paywall with prices of A$38 per document is good public policy."

Knapp said fees and charges to access annual financial reports from ASIC's corporate database have "nothing to do with cost recovery but everything to do with fee gouging." 

"The annual financial reports of the biggest companies operating in Australia should be available to all members of the public — not just to people who can afford it," he said.

Knapp said the government's failure to rule out "double dipping" on ASIC fees was disappointing given that work had already begun on a cost recovery consultation and possible registry sale.

Registry "cash cow" 

ASIC has been a lucrative source of revenue for the federal government for more than a decade, despite its portrayal as an impost upon taxpayers due to its extensive regulatory work. During the Senate Inquiry into the Performance of ASIC, chairman Greg Medcraft said the regulator was running its corporate registry services at A$142 million per year. This low cost base delivers an annual $540 million profit to the federal government.

Around 80 percent of those charges are levied on small businesses, with A$50 million paid each year for company searches. Knapp described this as "charging the public for public data". 

In return for levying these charges, the regulator receives federal funding of around A$350 million per year to cover all of its work, including operation of the corporate registry, market supervision and credit regulation.

Australia's approach to generating profits from corporate data contrasts with New Zealand and the UK. In the UK, for instance, Companies House recently made more than 170 million digital records on companies and directors available for free under the government's commitment to "open data". The information includes financial accounts, company filings and details on directors and secretaries over the life of each company. In New Zealand, most electronic searches are also free. 

Federal Cabinet is understood to be divided as it weighs up the "budget repair" value of a registry sale against the public benefit associated with greater corporate transparency and lower business costs.

Malcolm Turnbull, the communications minister, said in 2014 that it was "regrettable" company data had been placed behind a paywall.

The debate around the possible "double charging" of the existing registry fees on top of the new cost recovery fees is still ongoing within the government. Some members of the government take the view that carving out the registry arm will allow those fees to be charged without ASIC breaching the government's Cost Recovery Guidelines.

Despite these differences within Cabinet, the Department of Finance has begun a tender process to test the capacity of a private sector operator to "upgrade, operate and add value" to ASIC's existing registry functions. An A$11.5 million scoping study is exploring the most appropriate way to privatise ASIC's business database, including the possibility of a public float. 

Enhanced due diligence

Market participants have questioned how it is possible to proceed with a cost recovery consultation and a possible registry sale without first making a public commitment to reduce registry fees.

Sources said the Australian government should use the introduction of cost recovery as an opportunity to bring ASIC's existing fees into line with other comparable jurisdictions. It costs three times as much to register a company in Australia compared with New Zealand, one source noted.

Knapp said that if the government failed to reform ASIC's registry fees it would also have an impact on academic research. Recently, Knapp was aiming to conduct a research project that assessed the financial reports of 1,500 Australian private companies over a three-year period. The bill for obtaining electronic documents from ASIC would have come to A$171,000, which made the project unviable. 

"I want to do research that helps inform public policy debate about accounting by private companies in Australia but I am required to take a second mortgage on my home to do it," Knapp said.

Business concerns

David Brown, associate professor at the University of Adelaide Law School, said businesses were right to be concerned about high registry fees. 

"It is legitimate to ask why other jurisdictions can manage much lower fees for similar or the same services," he said. "There may be reasons why such comparisons are not apples with apples, or other differences, but ASIC should have to justify this, as the World Bank compares jurisdictions for the costs of doing business."

Davis also said it was important to challenge the misconception that ASIC imposed a cost burden upon taxpayers. Figures from Treasury show that the regulator has contributed far more to consolidated revenue than it takes out.

"ASIC is certainly not a huge liability on taxpayers. It plays the role of a regulator and it also oversees the registry services. So you'd like to think that the work it does as a regulator is beneficial for society and can be recovered from the organisations that it regulates," Davis said.

When it comes to the registry arm, Davis said it may make more sense to adopt the UK or Kiwi models where companies pay registration fees but the data is free to public users. 

"When you think about the registry business, in principle one could cover the fixed costs with fees for companies submitting data, rather than those who wish to use that data," he said. "Essentially operating a registry in the digital age is a relatively low-cost activity. Certainly in terms of the cost of accessing that data, it's minimal," Davis said.

This article was first published by the Regulatory Intelligence service of Thomson Reuters Accelus. Regulatory Intelligence (http://accelus.thomsonreuters.com) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.

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