Failing ASIC delivers Gov't $1 billion profit

Corporate regulator ASIC delivered the Federal Government a record $1 billion effective profit last financial year, with small business owners footing vast majority of the bill.


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ANTHONY KLAN

EXCLUSIVE

Australia’s corporate regulator delivered the Federal Government a record $1 billion effective profit last financial year, with small business owners footing the vast majority of the bill.

The revelations come as the Australian Securities and Investments Commission (ASIC) has this week attracted widespread criticism for refusing to take any action whatsoever against 10 former executives and directors of systemically corrupt casino operator Crown Resorts.

ASIC’s latest annual report shows it raised a massive $1.513bn in “fees and charges” for the Federal Government in 2020-21, but received just $437.1m back in government funding.

That’s a massive $1.078bn windfall - by far the biggest profit any government has extracted from the regulator in its three-decade history.

When created in 1992 (then the Australian Securities Commission), the regulator was to charge limited fees to the public to cover its operating costs.

Instead, the corporate regulator - which experts say is far less effective than it has ever been - has been used to quietly extract an ever growing pool of cash from the public via hidden taxes.

Since its creation, ASIC fees and charges have exploded -  mostly under the current Federal Coalition  - with the regulator now extracting in fees 3.7 times what it costs to operate.

The “revenues” of ASIC - which is the responsibility of Treasurer Josh Frydenberg - have soared by over 60 per cent in the past four years alone.

ASIC’s 2020-2021 annual report shows “fees and charges collected for the Commonwealth” grew from $920 million in 2016-17 to $1.513bn last financial year. (The total

In the year to June 2013, just before the Federal Coalition came to power, ASIC and cost $350m to run and earned the government $717m in fees and charges - roughly double.

In 2020-2021 ASIC cost $437m to run but delivered the government $1.513bn - 3.7 times more.

“Fee-for-no-service”

The vast majority of ASIC’s “revenues” come from “fees and charges” it levies on small business owners for  so-called “annual reviews” - which, it can be revealed, it doesn’t actually perform.

ASIC charges every Australian business - including every self-managed superannuation fund, as funds are required to register as a company - an “annual review fee”. 

“Each year, we send your company an annual statement shortly the annual review date,” ASIC states.

“Your annual statement will contain a statement of your company’s details (and) an invoice for your company annual review fee.”

Yet despite the misleading terminology, ASIC doesn’t actually conduct any “review”.

ASIC simply sends each company a statement, usually a single page, of its current details.

If those details, such as the company’s registered address, have changed, the company is required to contact ASIC to update its details - for another fee.

ASIC terms sending out companies a brief statement about their own details an “annual review”.

Much has been made - including by ASIC - of Australia’s big four banks illegally charging customers “fees for no service”, where customers were charged for financial advice that was never delivered.

The “annual review” fees charged by ASIC, particularly given the wording and the way they are presented, similarly represent a “fee-for-no-service”.

“ASIC’s ‘annual review’ charges are a fee-for-no-service”

The ASIC annual review fee is currently $276.

If the payment is a day late or more there is an additional $83 fee. If the payment is 30 days or more late, that fee explodes to $344, taking the total payment to $620.

Those “fines” delivered ASIC a monster $241.25m last financial year, up on $149.27m the year before - a leap of 62 per cent.

On top of that $241.25m ASIC listed a further $219.7m as “fees and fines receivable”, again the vast majority being “annual review” fees and associated late fines.

“Public” information

The overwhelming majority of money ASIC raises from the public is by charging companies to lodge information in its register - and then charging companies and the public to access that “public” data.

That’s despite the actual cost to ASIC of running the register being relatively minor.

The ASX conducts the same service, for every stock exchange listed company, for free.

its total cost of providing that function is so small it’s not set out in its financial accounts as it is “immaterial”.

Despite widespread community concerns, the Federal Government continues to charge highly excessive, almost punitive, fees for the public to access the information on the “public” business database.

This red-tape has a substantial impact on transparency and adds heavily to the cost of doing business.

The sky-high costs mean that undertaking normal business functions, such as conducting simple background checks or due-diligence on a company are generally out of reach of most Australians.

ASIC makes a very small amount of data available for free, including a company’s name and its address.

But for the vast majority of “public” information, ASIC gouges massive fees. (Continues below)

Accessing a single set of a company’s annual accounts that are over 10 pages cost an eye-watering $42.

Search costs quickly run into the hundreds and thousands of dollars.

Corporate governance experts warn the charges are having a major impact on transparency.

This is illustrated by the fact that of all the searches of ASIC’s register conducts, 98 per cent are searches of the free, very limited data.

The vast majority of information costs large amounts of money to access - and so accounts for just 2 per cent of all searches.

The exorbitant fees are among, if not the highest, in the industrialised world.

In many countries, such as the UK, US and New Zealand, such searches for “public” company information is free.

In 2014 then ASIC chairman Greg Medcraft famously described Australia as a “paradise” for white-collar crime.

The inaccessibility of “public” company information, and so financial opacity, adds substantially to that problem.

Journalists are particularly hard hit.

Searches of ASIC’s database the same as the ASX, or any other major database.

They are online and instantaneous.

In July 2018 the Federal Government announced that company searches for journalists would become free.

“The Government will extend the fee exemption that is currently available to some journalists for certain registry searches…to all journalists, for all registry searches,” then Finance Minister Mathis Cormann said at the time.

However, for reasons that neither the Federal Government or ASIC has explained - despite our repeated questions over several years - ASIC only allows journalists to conduct a limited type of searches online.

For the remainder, despite the register being fully electronic and instantaneous (for anyone with a credit card) ASIC makes journalists print out a form and send it in. ASIC then takes “up to ten days” to provide the information.

This often renders the service meaningless, as journalists regularly operate tight deadlines, very often requiring information the same day.

The Klaxon’s requests to ASIC for information regularly take the entire ten days to come back.

ASIC and the Federal Government have provided no valid reason as to why most journalist searches have been carved out from the online function.

(ASIC’s latest annual report boasts: “In total, 99.97% of applications to register a company or business name are now made online”.)

On one occasion, ASIC told The Klaxon it took it so long to conduct the (unnecessarily) “manual” searches because of “staffing”.

Yet making many of the journalist searches “manual” is entirely unnecessary. It’s an inexplicable and explicit waste of public resources.

““Making journalist searches ‘manual’ is entirely unnecessary and an explicit waste of public resources””

The impact on the broader community resulting from journalists not being able to access key information in any reasonable timeframe is far greater again.

IT experts have told us that removing the inexplicable electronic block on searches by journalists would cost ASIC next to nothing - its entire site works that way - and it could be achieved in a couple of hours.

Last financial year ASIC raised $64.9m for the government by charging for the “public” company information, up from $59.7m the year before.

“Fee-for-service”

The surge in revenue the government is collecting via ASIC has been fuelled by the Federal Government’s introduction, in mid-2017, of an “industry funding model”.

Companies now pay an annual “levy”, ostensibly to cover ASIC’s cost of operations.

Yet even at the time - a point picked up by very few in the media - the government was already using ASIC to not cover ASIC’s operating costs, but to cover those costs more than 2.5-times over.

In 2016-17 ASIC received $341.64m in funding but raised (mostly from small business registrations) $920m - 2.7 times more.

In 2017-18 ASIC received $348m from the government and, after including the new “industry funding” levies, raised $1.227m - 3.5 times more.

Further highlighting the fact that “annual review” charges are fees-for-no-service, is the fact that ASIC states its industry levy is a fee-for-service (covering ASIC’s operating costs).

When announcing the industry levy, ASIC said:

“This consultation process seeks stakeholder views on the proposed industry funding model (the model) to recover the regulatory costs of the ASIC though annual levies and fees-for-service.”

The Klaxon’s April 22 expose. Source: The Klaxon

Last financial year ASIC collected $314.5m under the “industry funding model”, almost three-quarters of its $437m operating cost.

The Federal Government’s record-breaking year of ASIC profits came in the same year that ASIC’s two Federal Coalition-appointed executives were forced to resign in an expenses scandal.

Both ASIC chair James Shipton - a former senior executive with notorious global investment  bank Goldman Sachs - and Daniel Crennan QC, a Melbourne barrister, were illegally paid almost $200,000 more than they were entitled to.

Treasurer Frydenberg announced a “review" into the scandal, but, as previously revealed by The Klaxon, he released a doctored version of the subsequent report, from which three-quarters of its key findings had been secretly deleted.

Despite the severity of the situation - a cover-up of corruption at the top of the corporate regulator involving the nation’s Treasurer - not one other media outlet has reported the scandal to date.

Up next: ASIC, Frydenberg, and one of the Liberal Party’s biggest financial “donors” - the systemically corrupt, billionaire James Packer-backed, Crown Resorts.

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Editor, Anthony Klan

Australian journalism is under threat like never before. So too is the ability for us, the public, to make informed decisions. A disintegrating media is serving to further concentrate the already vast, unhealthy, power held by a few. That power is routinely abused, its attendant responsibilities wilfully ignored, and our democracy weakened.

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Anthony Klan

Editor, The Klaxon

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