ASIC’s fee-for-service model isn’t good news for start-ups and consumers

Prepared by Nick Cardone

Commencing from 1 July 2018, Treasury proposes to alter the way ASIC receives fees by introducing a ‘fees-for-service’ model. This new model will allow ASIC to recover regulatory costs that are directly attributable to a single and identifiable entity.
ASIC will charge entities a fee based on the ‘weighted average hourly staff rate’ and the average number of hours to assess and process the entity’s relevant form/request. The practical effect of this will be that fees for AFSL and Credit Licence applications (including variation and cancellation applications) will increase significantly. For example, ASIC estimates that a ‘highly complex’ retail AFSL application could cost up to $11,305 , compared to the current cost of $1,688.

Treasury’s basis for this is to promote equity, whereby the recipients who create the need for a government activity, rather than the general public, bear its costs. In doing so however, ASIC could be restricting the one thing that it currently proclaims it is committed to: innovation in the financial sector. Clearly incumbents who already have an AFSL are at an advantage under this model.

Fintech companies are the main drivers of innovation in the financial sector, and commonly require an AFSL to conduct their business. A large proportion of fintech companies are start-ups with sometimes little or no funding to back their business idea. Often funding will be tied to obtaining an AFSL. Increasing the costs for these entities to enter the industry will ultimately deter them from doing so.  The time ASIC takes to consider AFSL applications from new entrants with innovative business and technology models is likely to be significant resulting in a much higher cost for new entrants.

However, this does not just affect start-ups; it also has a longer-term effect on consumers who will not receive the benefit of innovation in the financial sector, particularly where many fintech start-ups are looking to implement tools and mechanisms that could ease financial burdens and promote financial convenience. These changes also reduce competition in the sector which would effectively give more power to the big-4 banks (and other major financial planning firms) to continue their existing practices without any pressure to change.

If these changes are implemented, we will likely see more fintech start-ups using the services of ASIC’s Innovation Hub or relying on ASIC’s regulatory sandbox to provide financial services without an AFSL for 12 months. From our experience however, these resources are relatively restrictive in practice and will unlikely assist start-ups in a meaningful manner.

We will continue to monitor the developments in this space. Please let us know if you would like to catch up to discuss this.