Robust regulations are vital ingredients of market efficiency and effective consumer protection. However, the complex, multilayered nature of Australia’s current regulatory environment is alienating many of the consumers it aims to serve. It is also placing significant strain on public practitioners, and new research has finally put a dollar figure on the burden.
Soon-to-be released research commissioned by CPA Australia shows that, on average, 5-10 per cent of a practitioner’s annual turnover is consumed as a result of regulatory conflicts. In NSW alone, the direct cost of regulatory burden per business was $58,000 in 2016, and this created a direct cost of around $10.6 billion to the NSW economy.
Keddie Waller, Head of Public Practice, CPA Australia, said much of the cost comes down the fragmented nature of regulations.
“Australia has had over a decade of siloed regulations,” she said.
“There’s the Corporations Act, the Taxation Services Act, the National Consumer Credit Protection Act, plus there are obligations around the ASIC Act, amongst others. Often there is no harmonisation between these regulatory frameworks or even within a single regulatory framework.
“Depending on how the licensing and registration system is set up, a practitioner could need to hold multiple licences and/or registrations to be able to provide one piece of advice.”
Shouldering the burden
Practices with a limited Australian Financial Services licence (AFSL) are now required to pay a $1500 annual fee to ASIC for holding their licence, and a graduated levy of $934 for each person authorised under the same licence. The ASIC registration fee for self-managed super fund (SMSF) auditors has been increased from $107 to $1927, and ASIC imposes an $899 charge to cancel an SMSF auditor registration.
In addition to registration fees, there are higher compliance costs for firms offering financial advice, including high educational costs associated with the new Financial Adviser Standards and Ethics Authority (FASEA) regime, as well as ongoing expenses linked to bridging course requirements and continuing professional development (CPD), which can cost tens of thousands of dollars a year.
Waller stressed that while CPA Australia is a strong supporter of appropriate regulation, the current siloed model creates costly duplication and requires practitioners to bear a disproportionate share of the burden.
“A lot of advisers are small business owners trying to run their own business and service their clients while also navigating regulatory complexity,” she said.
CPA Australia’s research finds that almost 90 per cent of public practitioners believe the compliance burden of differing legislative frameworks is an issue, and less than a quarter said they have a clear understanding of obligations. There is also a strong preference among practitioners to change the tax registration system to avoid duplications.
The accounting body also conducted 10 focus groups with public practitioner members across the country in July this year to gain further insight into regulatory burden.
One practitioner from Melbourne said that streamlining regulations would improve their effectiveness.
“If you simplified it all and didn’t have all these layers, the regulator could get on with their job of actually trying to push out the rotten eggs, and it’d make people that do the right thing have less cost, less time, less effort to stay compliant, because that’s [what] most of us try and do,” they said.
Another practitioner in a Sydney focus group expressed concerns that regulatory complexity was making the industry less attractive to career seekers.
“I’ve noticed now fewer and fewer young people want to get involved in our profession because it has become so complicated. A very big barrier. I cannot stress it any more than that,” they noted.
A Canberra-based practitioner noted: “The problem with everything at the moment is that, if you want to be multifaceted and you want to provide multi-services, you’ve got to be licensed by everybody and I think I’ve got to do 60 hours [of CPD per annum].”
Counting the cost
CPA Australia’s research also found that the complexity of regulations may be preventing many consumers from accessing advice. It shows that almost 50 per cent of practitioners have increased their fees in the past year to cover increasing compliance costs.
“The cost of complying with all the regulations makes providing advice more expensive and limits the number of people who can access it,” Waller said.
“Clients are just looking for simple answers, but they are often not simple because of the layers of legislative requirements.”
Rebuilding the framework
For regulations to be effective, they must be fit-for-purpose and meet policy intent, said Waller.
“There’s a habit that when something goes wrong, we have an inquiry and a new piece of legislation emerges that adds a layer to existing regulatory requirements,” she said.
“The end objective for us is improving the accessibility of affordable, quality advice for consumers from their choice of trusted adviser.
“We need a holistic review of the regulatory framework, or look at what we really want to achieve through regulation, determine how we get there, and start again.”