Cost of regulation weighs heavy

The costs of breach reporting to the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) exceed the benefits that accrue to fund members, according to the Association of Superannuation Funds of Australia (ASFA).

ASFA principal researcher Ross Clare told the organisation’s annual conference in Perth that the ongoing aggregate cost of compliance were substantial and had increased rapidly in recent years.

“Compliance costs now amount to, on average, around 10 per cent of the total administration costs of the funds they relate to,” he said. “Increased compliance burdens have made a substantial contribution to the 10 per cent or more a year increase in administration costs experienced by a range of funds in recent years.”

He said the ongoing costs of APRA and ASIC recovered through the supervisory levy were running at an amount in excess of $42 million a year.

“Since APRA and ASIC came into existence in 1998, levies have grown substantially, with exponential growth in the levies paid by large funds,” Clare said. “Very large funds have experienced a 650 per cent increase in levies since 2001-02. No decrease in levies is in sight despite the much-reduced number of funds remaining in operation being better run.”

He said an ASFA Research Centre survey of ongoing compliance costs suggested that on top of the levies, funds incurred aggregate costs in the order of $135 million a year.

“Compliance costs range from $50,000 to $100,000 for a small fund to over $10 million a year for a large retail fund with an extensive adviser network,” Clare said.

He said compliance costs for the funds responding to the survey typically amounted to between 10 per cent and 20 per cent of their total administration costs.

Clare said the relevant question was whether there had been value for money from the current compliance regime, and while available evidence and analysis indicated some benefits have been delivered, “not all regulatory interventions have benefits exceeding the compliance costs”.

“The regime of breach reporting to both APRA and ASIC is one where the costs of compliance appear to now exceed any benefits that accrue to fund members,” he said. “Given that the cost of compliance is ultimately paid by fund members, this is a matter for concern.”