The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, today introduced the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 (Modernisation Bill) into Parliament.
The Bill addresses three key areas of financial services regulation:
- Margin lending
- Trustee companies
- Debentures and promissory notes
More information on these reforms can be downloaded at www.treasury.gov.au/consumercredit.
Margin lending
"The introduction of this legislation is a major step towards implementing the COAG decision of 26 March 2008 for the Commonwealth to assume responsibility for the regulation of margin loans," Mr Bowen said.
"The new margin loan legislation represents a major improvement in consumer protection in an area which was previously only subject to patchy and inconsistent regulation."
Important changes to the legislation were made following public consultation and include a lengthening of the transition period allowed before key provisions in the new legislation begin to apply. This is particularly the case for the responsible lending requirements, which will introduce a new requirement for margin lenders to assess whether a proposed loan is unsuitable for a consumer.
The Government recognises that implementation of this new requirement requires significant efforts on the part of lenders, including the development of new systems and processes, as well as training of staff. Margin lenders will now have 12 months to prepare for the new regime, as compared to 3 months in the exposure draft.
The new regime will make margin loans subject to the investor protection regime in the Corporations Act. It requires margin lenders and advisers to obtain a licence and be subject to supervision and enforcement by ASIC. It will also give borrowers access to free and fast dispute resolution services where they have a dispute with their provider.
Margin loan lenders will be subject to responsible lending requirements which will only allow them to provide a margin loan if they are reasonably sure that the borrower is able to afford the loan without suffering substantial hardship. A new provision is included which clarifies whether lenders or financial advisers are responsible for notifying borrowers of margin calls.
Trustee companies
"For the first time, there will be a single, national market for trustee services, with transparent licensing requirements overseen by an appropriately resourced regulator", Mr Bowen said.
"Trustee companies will need to have adequate resources and meet the other conditions of their licence."
The Bill also delivers on the Rudd Government's commitment to the States and Territories and to the finance sector, made through the Council of Australian Governments (COAG), to assume responsibility for the regulation of trustee companies under a single, standard, national regulatory regime.
The legislative amendments will harmonise the regulation of trustee companies, thereby reducing the regulatory burden on them. Traditional trustee company services will be regarded as financial services under Chapter 7 of the Corporations Act, and trustee companies will be required to hold an Australian financial services licence covering the provision of the relevant services.
The amendments will also protect consumers by establishing a national consumer protection and disclosure regime under the Corporations Act and the ASIC Act (further details will be set out in regulations). Trustee companies will also need internal and external dispute resolution mechanisms, providing a simpler, cheaper way for consumers to resolve complaints.
The legislation provides that fees must be fully disclosed to the public via the internet. Fees charged to non-charitable trust clients are limited to the trustee company's latest published schedule of fees.
Also, fees charged to charitable trusts and foundations will be regulated to ensure that beneficiaries of these trusts are protected. Specifically, fees charged to "new client" charitable trusts will remain subject to capping based on the Victorian Trustee Companies Act 1984. "Existing client" charitable trusts will have their fee levels frozen to ensure the fees do not rise as a result of the new regime.
Debentures
The Bill amends the regulation of debentures and promissory notes and creates a register of debenture trustees.
The changes harmonise the legal regime to require all retail debentures and promissory notes to be subject to the consumer disclosure and protection measures currently applying to debentures. This includes the requirement to have a trust deed and trustee arrangements, and to issue a full prospectus.
These changes will improve protection for retail investors who invest in debentures and promissory notes, by creating a safer and consistent regime for their regulation, backed by a national register of debenture trustees.
The register of debenture trustees will also add to transparency. ASIC will be required to create and maintain the register, which will be available for viewing by the public.
25 June 2009