The new user pays model for keeping banks in line was recommended by one of their own

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The banks will have to pay out $120 million so the corporate watchdog ASIC can do more to investigate misconduct among them because one former distinguished executive thought a user pays system was the best way to go.

The new model for ASIC was a key recommendation of the Financial System Inquiry headed by former Commonwealth Bank CEO David Murray.

The industry funding model will see costs recovered from all industry sectors regulated by ASIC from the 2017-18 financial year.

The first is banking which will put in about $121 million of $127 million to be spent over four years investigating the banks.

Not all details have been finalised and the federal government says it will consult extensively with industry to refine and settle the funding model.

David Murray. Getty

But the corporate watchdog likes the idea.

“ASIC has long believed that those who generate the need for regulation should pay for it,” says chairman Greg Medcraft.

“ASIC has worked with Treasury to consult with industry and we look forward to continued engagement with those we regulate to see Industry Funding work well.”

The Financial System Inquiry recommended costs of regulatory activities be recovered directly from industry participants through fees and levies.

The inquiry report says:

The absence of industry funding means ASIC costs are not transparent to regulated industry participants. It also exposes ASIC to an increased risk of funding cuts that are unrelated to changes in the cost of delivering on its mandate.

Currently most of the revenue collected by ASIC is annual fees paid by small proprietary companies to maintain their registration.

What they pay is more than the actual cost.

“By contrast, the fees collected from large corporations, auditors, liquidators and financial institutions amount to less than the cost of regulating them,” according to the Financial System Inquiry.

Some of the shortfall is offset by money collected through the Financial Institutions Supervisory levies administered by APRA (Australian Prudential Regulation Authority).

The main benefit of industry funding is to give ASIC more predictable funding as well as strengthen engagement between ASIC and industry on the costs of conduct and market regulation, according to the Financial System Inquiry.

“The funding model should be structured to create a close relationship between the incidence of fees and levies and the cost of regulating the relevant activity,” the inquiry said.

“Costs must also be attributed fairly across different firms and industry segments. The way in which industry funding is implemented may need to be tailored to different industry sectors.”