More regulation for margin lending and mortgages

The Rudd Government has announced sweeping changes to the regulation of the controversial margin loan industry just months after the collapse of margin lenders Opes Prime and Lift Capital.

The margin loan industry is still largely unregulated, despite the fact the total margin loans held by Australians has ballooned from $6.7 billion to $32.6 billion since 2000. Under the proposed new rules, margin loans would become a financial product regulated under the Corporations Act by the Australian Securities and Investments Commission.

Banks and other financial service providers selling margin loans would be forced to meet new licensing and training requirements.

The mortgage industry will also face new scrutiny, with mortgage brokers, banks and non-bank lenders required to be licensed by ASIC. Mortgage providers would face increased disclosure requirements and would also ensure the advice they give is appropriate and reasonable to the customer’s circumstances.

Federal Minister for Superannuation and Corporate Law Nick Sherry says it is crucial that Australia has a single national financial services framework. “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.”

The chief executive of the Australian Bankers’ Association, David Bell, supports the move towards a “nationally consistent, cost-effective financial services regulation” and says the elimination of inconsistent state regulations will help reduce costs for the banking sector.

Phil Naylor, chief executive of the Mortgage and Finance Association of Australia, says the new mortgage regulations will help stamp out rogue elements in the mortgage industry. “It is crucial for the industry and borrowers alike for one set of rules to apply and it is important that these rules are consistently enforced across the nation.”

It will be some time before the new rules are actually in place. There will be 30 days for the community and financial services sector to comment on the proposals before they are presented at the July meeting of the Council of Australian Governments. A final regulatory framework is expected to be agreed with the states and territories in October, with powers transferred by the end of next year.

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