Proposed ASIC funding model will subsidise poor corporate behaviour

The funding model for ASIC being proposed by the Federal Government is likely to result in-well run and well-governed entities subsidising entities exhibiting poor corporate behaviour, claims Governance Institute of Australia.

“Because it is predicated on size alone, with no risk weighting attached to the market capitalisation metric, the proposed model inevitably means that listed entities that have little interaction with ASIC will face significant levies based purely on their capacity to pay,” says Governance Institute chief executive Steven Burrell.

“If we want to encourage and reward good corporate behaviour, costs should be borne by those creating the need for regulatory oversight and activity. Unfortunately, this is not the case with the proposed funding model, which does not take into account that higher market capitalisation companies are generally better resourced and have strong governance, risk and compliance frameworks. In fact, smaller cap companies can take up more regulatory focus, time and attention than their big-end-of-town cousins,” Mr Burrell added.

“Any policy underlying the funding model should encourage good conduct and governance and send a pricing signal to entities about their value. If companies are well-run and treat their shareholders and customers fairly, they are behaving as good corporate citizens.”

“ASIC needs a user–pays system that has the potential to improve risk cultures, but the proposed model will not achieve that outcome. It takes a ‘capacity-to-pay’ approach, which is not the same as costs being proportionately borne by those creating the risk.”

Governance Institute is also concerned with the assumption that larger entities generally pose a higher risk to the economy, noting that there is no risk analysis to substantiate this. “The government says that it cannot propose a risk-weighted levy because it would increase compliance costs, yet it is actually making a risk assessment based on size only when it comes to listed entities,” Mr Burrell noted. 

“We want ASIC to have the funding it needs to successfully fulfil its responsibilities and protect the integrity of our markets. But the funding model should act as an effective deterrent to poor behaviour. What we don’t want is a funding model where shareholders of well-run and well-governed companies are picking up the tab for badly behaved entities,” Mr Burrell concluded.

For further information contact Viv Hardy on 0411 208 951 or Steven Burrell on (02) 9223 5744 or 0407 708 485.

About Governance Institute of Australia

Governance Institute of Australia is the only independent professional association with a sole focus on whole-of-organisation governance. Our education, support and networking opportunities for directors, company secretaries, governance professionals and risk managers are second to none.

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