For the first time Australia has a very good chance of getting uniform business regulation from the Federal Government, with no involvement from the states, and rogue operators in the troubled debenture area being brought into the regulatory net.
As well, the Federal Government plans to assume all controls over margin lending, which together with the debenture operators like Westpoint, have flourished in a regulatory gap between the states and Canberra, and between the key regulators, the ASX and ASIC.
Now a green paper from the government proposes to tighten laws governing financial services and will attempt to streamline them by eliminating duplication.
Federal Treasurer Wayne Swan and Corporate Law Minister Nick Sherry released the green paper on financial services regulation and credit reform yesterday in Canberra.
"National regulation, single standard regulation, is very important in a modern economy," he said.
Standard regulations would make it easier and simpler for businesses and for consumers.
The final framework should be agreed upon at COAG (Council Of Australian Governments) in October.
"The powers transfers will occur and then the details of regulation will be concluded in the next calendar year," Senator Sherry said.
The Green Paper outlines a way forward for the Commonwealth and states to transfer the remaining financial services regulation from the State level. Under the plan, financial services, including mortgages, mortgage brokers, margin lending, non-bank lending and trustee companies, will move to the Federal level.
"The Financial Services and Credit Reform Green Paper provides a plan for change – to benefit the consumer, while reducing red tape and compliance costs for business, and ensuring Australia stays ahead in the international financial services market," Senator Sherry said.
"The current regulation in these areas is either duplicated, patchy, confusing, very hard to change or even non-existent. As a result, some consumers receive poor or inadequate advice, while opportunistic product promoters use gaps in existing regulation to take advantage of vulnerable investors. The Commonwealth and the States agree that this is just not good enough in the year 2008."
"Australia needs a financial services regulatory structure for the 21st century, one which provides the highest standards of disclosure, advice and prudential supervision, and does so at a national level."
"For years these issues languished while the former Government received report after report highlighting the need for action. The Rudd Government is listening to consumers, businesses, stakeholders and the States and we’re taking early action to streamline the regulation of financial services," Minister Sherry added.
"On mortgages, it’s absolutely critical that the advice new borrowers receive is top quality and that they are not getting into debt they can’t service. I am also concerned about reverse mortgages and the number of people taking them up without a clear understanding of the implications."
The Green Paper also seeks input on the regulation of other credit products, such as credit cards and personal loans. COAG has agreed further analysis of how these additional forms of credit are regulated is needed and the Rudd Government will progress this additional work rapidly over coming months.
In addition to financial services subject to COAG action, two further important areas are included in the Green Paper – debentures and property spruikers like the now defunct Henry Kaye organisation.
"The rules around investments like debentures and promissory notes are fragmented and open to abuse as shown by recent high profile cases, such as Westpoint. I believe we can act to better protect investors through a streamlined approach. On property spruikers, the Government wants to hear from the community as we know people have been hurt by some operators and we’ll take action to fix that."
Senator Sherry’s statement listed the main areas for examination.
Credit and mortgages:
Maintain the status quo; or regulate all credit; or regulate mortgages (and consequently mortgage lenders and brokers).
There would be uniform rules for mortgages, including reverse mortgages, across all jurisdictions with a single body responsible for licensing brokers and a single body responsible for policing and enforcing standards. By taking over this area of financial services, the Australian Government would cover the most important forms of consumer credit, accounting for over 86 per cent of consumer credit on issue by amount.
Margin lending:
Maintain the status quo; or include margin loans as a product under the Corporations Act Chapter 7 regime; or develop a separate Commonwealth regulatory regime for margin loans.
Defining a margin loan as a financial product will make the Chapter 7 disclosure regime applicable to margin lending products and make them subject to disclosure requirements such as Statement of Advice (SOA); and Product Disclosure Statements (PDS) requirements.
Trustee companies:
Consumer protection supervision; or prudential regulation:
The Commonwealth would implement legislative amendments to the Corporations Act 2001 to provide for licensing and supervision of trustee corporations by ASIC.
Debentures/Promissory notes:
Harmonise regulation of promissory notes, regardless of value; extend licensing rules for debenture issuers; require debenture trustee companies to be licensed; and review duties of trustees.
There have been a number of high profile corporate collapses of property development companies, starting with Westpoint and followed by Fincorp, ACR and Bridgecorp. It is proposed to harmonise regulation of promissor
