The whole financial services industry, in particular credit providers, finance brokers and trust companies.
What do you need to do?Affected businesses should review the Green Paper and prepare submissions. Submissions are due by 1 July 2008.
Partner
T +61 2 9296 2068
Sydney
Andrea Beatty
James Moore
Melbourne
Katherine Forrest
Ros Grady
Perth
Nicholas Creed
Brisbane
Aaron Bourke
Author
James Moore
The Government today released a Green Paper proposing major reforms to credit and financial services laws. Mortgage lending and broking may be regulated by the Commonwealth, with other consumer lending remaining with the States and Territories. If implemented, these changes will have a major impact on the financial services sector. Submissions close on 1 July 2008.
Regulation of credit would be split between the Commonwealth and the States under proposals in a Treasury Green Paper. Residential mortgage lending would be regulated by ASIC, with possible changes to existing disclosures under the Consumer Credit Code. Other consumer credit would continue to be regulated by the States and Territories, under a possibly inconsistent regime. Submissions are invited by 1 July 2008. The Green Paper also considers, but does not favour, a proposal for the Commonwealth to regulate all credit. Financial services companies should review the Green Paper and consider making a submission as a matter of urgency. We can help.
Background
The Council of Australian Governments (COAG) agreed in principle on 28 March 2008 that mortgage credit and finance broking should be regulated by the Commonwealth. The Green Paper - “Financial Services and Credit Reform - Improving, Simplifying and Standardising Financial Services and Credit Regulation” - explores options for that coverage. Only 4 weeks have been allowed to prepare submissions.
Credit proposals
Chapter 1 of the Green Paper deals in detail with residential mortgage lending (including bank and non-bank lending and reverse mortgages) and associated finance broking. The main option proposed is a new regime with a single national regulator (ASIC) to license mortgage credit providers and brokers and “improved disclosure” for mortgage products and advice. ASIC would prescribe minimum disclosure requirements for credit contracts.
This may mean that the uniform Consumer Credit Code will not be retained for mortgage lending, and a new regime will be designed. If that is the case, mortgage credit providers would need to change their documents, systems and procedures accordingly.
The Green Paper also deals with margin lending (that is, lending for the purpose of an investment in financial products which secure the loan). The main option that is considered is regulating margin lending (and related activities) as a financial service under Chapter 7 of the Corporations Act.
The Green Paper leaves open an option for the States and Territories to continue to regulate other consumer credit products, including credit card and personal loan products. It is argued that consumers may have different needs in different areas, so that inconsistent regimes could be beneficial.
(This approach may be compared with the Productivity Commission’s support for nationally consistent legislation covering all credit - see our earlier alert.)
Submissions may wish to focus on any additional compliance costs that could flow from:
- splitting credit products between two (or more) separate regulatory regimes, and
- changing the documentary disclosure standards for mortgage lending.
Submissions might also consider whether the approach suggested in the Productivity Commission report - of making the Commonwealth the regulator of all credit and finance broking, and re-enacting the uniform Consumer Credit Code as Commonwealth legislation - would be more suitable.
Other proposals
The Green Paper makes a number of other proposals on financial services issues as described below.
- Trustee corporations - Trustee corporations are currently regulated on a state-by-state basis. The Green Paper proposes to create a national market by applying national regulation to trustee corporations.
- Debentures - Following a number of high-profile collapses of issuers of unlisted debentures, the Green Paper proposes to make a number of changes to the regulation of debentures. These include harmonising the regulation of promissory notes, regardless of their value, and extending licensing requirements for debenture issuers. The duties and licensing of debenture trustees would also be amended.
- Real property investments - The Green Paper seeks submissions on what reforms might be implemented to resolve perceived problems with property investment advice.
What next?
The Government has allowed only 4 weeks for submissions to be prepared.
COAG has agreed in principle that there will be significant changes to credit regulation. It has established a process to develop firm proposals by October 2008 for Commonwealth regulation of mortgage credit. The Green Paper is an important part of that process.
Financial services providers should assess the impact of the Green Paper proposals. Responding to the Green Paper may be the best opportunity for the financial services sector to shape the course of the new regime for lending in Australia.
Submissions
Submissions are due on 1 July 2008. We can help your organisation to prepare its submission.