Financial Services Compensation Scheme of Last Resort Levy Regulations 2023

The Financial Services Compensation Scheme of Last Resort Levy Regulations 2023 are a legislative instrument made under the Financial Services Compensation Scheme of Last Resort Levy Act 2023. Their role is to supply the detailed operating rules for part of the levy framework that funds the Compensation Scheme of Last Resort.

In practical terms, the Regulations do three main things. First, they prescribe which sub-sectors are subject to annual levy. Second, they set general conditions that must be met before annual levy or special levy is imposed. Third, they provide formulas for working out annual levy, further levy and special levy amounts.

For business owners, the main point is that this is a targeted levy framework. It is not a general charge on all ASIC-regulated businesses. Whether the levy applies depends on your regulatory category, your status as a leviable entity, whether Commonwealth law requires you to be a member of the AFCA scheme, and the metric that applies to your sub-sector.

The instrument also relies heavily on concepts taken from other laws, especially the ASIC Supervisory Cost Recovery Levy Regulations 2017. That means a business cannot safely rely on the sub-sector labels alone. You need to check the underlying definitions and the data points those definitions use.

Section 6 prescribes four kinds of sub-sector for annual levy purposes. They are:

1. the credit intermediaries sub-sector, within the meaning of subsection 25(1) of the ASIC Supervisory Cost Recovery Levy Regulations 2017

2. the credit providers sub-sector, within the meaning of subsection 26(1) of those regulations

3. the licensees that provide personal advice on relevant financial products to retail clients sub-sector, within the meaning of subsection 43(1) of those regulations

4. the securities dealers sub-sector, within the meaning of subsection 67(1) of those regulations.

That cross-reference matters. A business should not assume that ordinary industry language matches the legal category. The prescribed sub-sector is the one described in the ASIC Supervisory Cost Recovery Levy Regulations 2017, not just the broad commercial description you might use internally.

Section 7 then adds the general conditions for annual levy. For annual levy to be imposed on a person for a levy period, the person must be a leviable entity for the qualifying period for that levy period, and a law of the Commonwealth must require the person, directly or indirectly, to be a member of the AFCA scheme. The note to section 7 makes clear that, for annual levy to be imposed, each of those conditions must be met at any time during the qualifying period for the levy period.

Section 8 sets the general conditions for special levy. The timing is broader. For special levy, the person must be a leviable entity for the levy period or the previous levy period, and Commonwealth law must require the person to be a member of the AFCA scheme at any time during the levy period or the previous levy period.

So the scope question is not just, “What kind of business am I?” It is also, “What was my status during the relevant period?”

Section 9 says the annual levy amount for a person in a sub-sector is the sum of two parts: the minimum levy component and the graduated levy component. The minimum levy component for each sub-sector is $100.

That does not mean the annual levy is effectively capped at a low amount. The graduated levy component is where the larger exposure may sit. Section 11 provides the formula for that component. In broad terms, the formula uses the person’s graduated entity metric, the sub-sector metric and the sub-sector costs.

The Regulations also build in some limits. For annual levy, sub-sector costs are the lesser of the initial claims, fees and costs estimate for the levy period and sub-sector, and the sub-sector levy cap for that levy period and sub-sector. The notes to section 9 and section 13 also indicate that the total amount worked out under the annual and further levy rules is structured so the relevant caps are not exceeded.

There is also an important rule in section 11(2): if a component of the formula is nil or a negative amount, the graduated levy component is nil. That can matter where a business has a low metric, where a threshold applies, or where the formula otherwise produces a nil or negative result.

For the credit providers sub-sector, the graduated entity metric is not simply the person’s entity metric. Section 11 says it is the difference between the person’s entity metric and $100,000,000. That threshold is a practical point lenders should notice when reviewing likely levy exposure.

Section 12 sets the entity metric for each prescribed sub-sector.

For the credit intermediaries sub-sector, the entity metric is the number of credit representatives the person has at the end of the qualifying period for the levy period.

For the credit providers sub-sector, the entity metric is the gross amount of credit provided by the person in the qualifying period under credit contracts, excluding small amount credit contracts and medium amount credit contracts.

For the licensed personal advice sub-sector, the entity metric is, subject to a special exclusion rule, the number of relevant providers who are registered on the Register of Relevant Providers at the end of the qualifying period and are authorised to provide personal advice to retail clients on behalf of the person.

For the securities dealers sub-sector, the entity metric is the total value of transactions in securities, measured by the buy price plus the sale price, where the transactions are executed for the person on, or reported for the person to, a large securities exchange in the qualifying period, are reported by the operator of the exchange to ASIC’s Market Surveillance System, and are recognised by that system as executed transactions. Duplicate reports relating to the same transaction and containing the same information are counted as one transaction.

These are technical metrics, but they are based on records businesses should already be maintaining. That makes data quality important. If your representative count, lending data, relevant provider authorisations or transaction reporting is inaccurate, your levy position may also be inaccurate.

The personal advice sub-sector also has a specific overlap rule. If the person also forms part of a sub-sector mentioned in sections 64, 65 or 67 of the ASIC Supervisory Cost Recovery Levy Regulations 2017 at any time in the qualifying period, relevant providers who only provide advice on quoted financial products, financial products traded on a prescribed foreign financial market, or basic banking products are disregarded for this metric. This is a good example of why businesses need to read the cross-referenced regulations carefully.

One of the most important practical features of this instrument is how often it relies on the ASIC Supervisory Cost Recovery Levy Regulations 2017. The cross-references are not incidental. They are central to how the levy framework operates.

The prescribed annual levy sub-sectors in section 6 are defined by reference to those regulations. Section 11 uses the concept of sub-sector population by reference to section 10 of those regulations, then removes from that population those who are not subject to the AFCA scheme at any time during the qualifying period. Sections 16 and 17 also use concepts from those regulations when working out special levy across several sub-sectors, including whether the basic levy component applies, what the basic rate entity metric is, what the graduated entity metric is, and what the sub-sector metric is.

For businesses, the practical consequence is simple: if you only read this instrument, you may miss the legal definition that actually determines your classification or metric. For example, whether you are in the credit intermediaries sub-sector or the licensed personal advice sub-sector is not answered by a broad business description. It is answered by the meaning given in the ASIC Supervisory Cost Recovery Levy Regulations 2017.

This also affects record-keeping. If your levy exposure depends on a metric borrowed from another instrument, your internal compliance team should make sure the data source used for ASIC levy reporting is consistent with the data source used for Compensation Scheme of Last Resort levy analysis.

Section 10 contains two important nil annual levy rules. These rules are narrow and timing-based, so they are especially relevant for businesses that are winding down, restructuring, selling a regulated business line or exiting a sub-sector.

The first nil rule applies if the person is required under section 8 of the Levy Collection Act to provide information to ASIC for the levy period and, before the end of the day on which that information is required to be provided, the person is deregistered under Part 5A.1 of the Corporations Act 2001 or ASIC publishes a notice regarding the proposed deregistration of the person under section 601AA or 601AB of that Act, and the person’s registration is not reinstated before the end of that day.

The second nil rule applies if the person is required under section 8 of the Levy Collection Act to provide information to ASIC for the levy period and, before the end of the day on which that information is required to be provided, the person ceases to be a member of the sub-sector and does not resume being a member before the end of that day.

These rules do not create a broad exemption for businesses that have simply stopped trading or intend to close. The legal trigger is tied to the information deadline and to specific status events. If a business exits a sub-sector one day too late, or resumes membership before the end of the deadline day, the nil rule may not apply.

That makes timing a practical compliance issue. Businesses planning deregistration, licence surrender, sale of a regulated business, or cessation of a regulated activity should map the relevant dates carefully against the ASIC information deadline.

Section 12 also includes a pro-rata adjustment for certain businesses that held the relevant licence for only part of the qualifying period. This applies to the credit intermediaries sub-sector and the licensed personal advice sub-sector.

If a person in the credit intermediaries sub-sector held the relevant kind of licence on only some of the days in the qualifying period, or a person in the licensed personal advice sub-sector held the relevant kind of licence on only some of the days in the qualifying period, the entity metric is adjusted by multiplying the amount otherwise worked out by a fraction based on counted days.

The counted days are the number of days in the qualifying period on which the person holds the relevant kind of licence. This means the metric is not always taken at face value. A business that entered the market part-way through the period, or ceased holding the relevant licence before the end of the period, may have a reduced metric under the pro-rata rule.

This is particularly important for newer businesses, businesses that acquired a licence during the year, and businesses that changed structure or licence holder during the period. It is also a reminder that the levy framework is sensitive to legal status over time, not just to a snapshot at year end.

The Regulations do not stop at the initial annual levy. They also set out how additional levy can be imposed later.

Section 13 deals with further levy where a revised claims, fees and costs estimate comes into force for a levy period and sub-sector, and total levy does not exceed the sub-sector levy cap. The amount is essentially the difference between what the graduated levy component would have been using the revised estimate and what has already been worked out using the initial estimate and any earlier revised estimates.

Section 14 deals with special levy where total levy exceeds the sub-sector levy cap and both a revised claims, fees and costs estimate and a determination under section 1069H of the Corporations Act 2001 have come into force for the levy period and sub-sector. The amount is worked out by reference to what the graduated levy component would have been if sub-sector costs were the lesser of the amount specified in the determination and the amount remaining under the scheme levy cap after levy already imposed.

Sections 15 to 17 then deal with special levy across several sub-sectors. In broad terms, these provisions apply where a revised estimate and a determination under section 1069H have come into force for a primary sub-sector, and a person is a member of a specified leviable sub-sector at any time during the levy period or previous levy period. The amount is then worked out under section 16 or 17 depending on whether the basic levy component applies to the leviable sub-sector under Part 3 of the ASIC Supervisory Cost Recovery Levy Regulations 2017.

The formulas in sections 16 and 17 again rely on concepts from the ASIC Supervisory Cost Recovery Levy Regulations 2017, including the basic rate entity metric, graduated entity metric and sub-sector metric. The provisions also include mechanisms to ensure the scheme levy cap is not exceeded.

For businesses, the practical message is that the first levy notice may not be the end of the story. If estimates change or a determination is made, additional levy may follow.

If you run a mortgage broking or finance broking business, start by checking whether you are in the credit intermediaries sub-sector under the ASIC Supervisory Cost Recovery Levy Regulations 2017. Then check your number of credit representatives at the end of the qualifying period and whether you held the relevant licence for only part of that period.

If you are a lender, focus on whether you are in the credit providers sub-sector and on the gross amount of credit provided in the qualifying period under credit contracts, excluding small amount credit contracts and medium amount credit contracts. Because section 11 applies a $100,000,000 adjustment to the graduated entity metric for this sub-sector, lenders should pay close attention to how that threshold affects the formula.

If you are an advice licensee, review the number of relevant providers registered at the end of the qualifying period who are authorised to provide personal advice to retail clients on your behalf. Also check whether the overlap exclusion rule applies because you are also in one of the sub-sectors mentioned in sections 64, 65 or 67 of the ASIC Supervisory Cost Recovery Levy Regulations 2017.

If you are in securities dealing, the quality of your transaction reporting matters. The metric depends on transactions executed for you on, or reported for you to, a large securities exchange, reported by the operator to ASIC’s Market Surveillance System, and recognised by that system as executed transactions.

Across all business types, also check whether Commonwealth law required AFCA membership during the relevant period, whether you were a leviable entity during the relevant period, and whether any timing event such as deregistration or sub-sector exit occurred before the ASIC information deadline.

The instrument is titled the Financial Services Compensation Scheme of Last Resort Levy Regulations 2023. It was made under the Financial Services Compensation Scheme of Last Resort Levy Act 2023.

The available Register information identifies the instrument as made on 6 July 2023 and registered on 7 July 2023. The compiled version referred to here is Compilation No. 1, showing the law as amended and in force on 1 November 2023, and registered on 22 November 2023. The Register metadata also indicates a possible future repeal from 1 October 2033 due to section 50 of the Legislation Act 2003.

Because legislative instruments can be amended, businesses should check the current Register version before relying on any calculation or scope analysis.

This page is based on the current compiled text identified on the Federal Register of Legislation for the Financial Services Compensation Scheme of Last Resort Levy Regulations 2023.

The available text clearly covers sections 1 to 17, but it cuts off near the end of section 17 and does not include the full text of section 18, which deals with levy for unpaid claims and AFCA’s unpaid fees for complaints given to AFCA before the accumulation recovery day. If your issue relates to that topic, you should check the current Register version directly.

Because this instrument works through multiple cross-references, businesses should read it together with the Financial Services Compensation Scheme of Last Resort Levy Act 2023, the levy collection legislation referred to in section 10, the Corporations Act 2001 and the ASIC Supervisory Cost Recovery Levy Regulations 2017.