ASHLEY HALL:
The Federal Government has announced a major crackdown on controversial margin loans. The new national regulation of the $21-billion industry will stop investors from using the family home as security for taking on risky levels of debt to buy shares. Margin lenders will be licensed and they'll be forced to fully disclose fees and commissions.
The Minister for Superannuation and Corporate Law Senator Nick Sherry is speaking with our business editor Peter Ryan.
NICK SHERRY:
There have been many individuals who have been caught up in what we call a double debt trap - using their home as security - and that's of particular concern to the Labor Government.
But more broadly some of the activity and collapses we saw last year undermined broader confidence in the share market generally.
PETER RYAN:
How much of the proposed overhaul has been driven by the pain and hardship caused by the collapse of companies like Storm Financial?
NICK SHERRY:
We identified last year that financial regulation in Australia needed updating, modernising for the 21st century and what was particularly concerning about margin lending was that it's currently not regulated in Australia at all. This seemed to the Rudd Labor Government to be a major hole in regulation supervision.
And then of course with some of the collapses, Storm included, we saw not just the loss of monies invested but the loss of the family home used as security. So to that extent it's certainly been of major concern to this Government.
PETER RYAN:
As you say some people in recent months have lost everything including the family home, so doesn't today's action come a little bit too late for them?
NICK SHERRY:
Well I think what's important is that we don't see a repeat of these type of circumstances again. I mean the margin lending sector has grown in the last 10 years from about $5-billion to some $37-billion with hundreds of thousands of participants. And what is very, very important is that as margin lending investment recovers, it's done so on a properly regulated and supervised basis.
PETER RYAN:
Under the new laws will the family home be safe or simply off limits for certain products?
NICK SHERRY:
Well what we're going to require is a full assessment of what we call the loan-to-value ratio, the true loan to value ratio which in many cases has not been occurring and we believe that that would see the risk of family homes being lost in these circumstances is very, very much reduced.
PETER RYAN:
Are the new laws designed to simply regulate financial advisers or to wipe some of them out?
NICK SHERRY:
There will always be a legitimate place for responsible planners. The considerable majority are responsible. We've seen some unfortunate behaviour and it's time for a crackdown.
PETER RYAN:
The Minister for Superannuation and Corporate Law Senator Nick Sherry speaking with our business editor Peter Ryan.