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Monday, 14 September 2009
Page: 9517

Mr BOWEN (Minister for Financial Services, Superannuation and Corporate Law and Minister for Human Services) (4:45 PM) —in reply—I thank the honourable members who have spoken on this Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009, particularly the honourable member for Werriwa. This bill will give effect to the COAG agreement to provide for national regulation of margin lending and trustee corporations. The bill will also make long awaited improvements to the regulatory regime covering the issue of debentures. Until now, margin lending has not been subject to any specific regulatory regime at all. This is a serious issue particularly because non-standard margin loans contain some features that borrowers often find difficult to understand.

As we saw in the fallout from several recent high-profile financial collapses, when investors put their money into sophisticated financial products they do not fully understand they can stand to lose up to hundreds of thousands of dollars and, sometimes, their family home.

Under this bill, lenders and advisers will need to be licensed and regulated by ASIC. Consumers will have access to independent, free and fast dispute resolution services. Importantly, under the new responsible lending requirements, advisers will be required to only provide advice if it is appropriate to the client’s needs and circumstances.

A further consumer protection measure clarifies which party is responsible for notifying borrowers when a margin call occurs where both a lender and a financial adviser are involved. In the past, delays in margin call notifications and disagreements between lenders and advisers contributed to losses suffered by consumers. The new margin loan regime provided for by the financial services modernisation bill represents a major and long overdue improvement in consumer protection.

The second area covered by the bill is the traditional activities of trustee corporations. These include personal trust and deceased estate administration services. Trustee corporations which carry out these tasks are currently regulated by the states and territories, but the regulatory coverage is often inconsistent. Under the Commonwealth system there will be a single licensing regime administered by one single well-resourced regulator, ASIC.

Under the financial services modernisation bill, the traditional services of trustee corporations will be deemed to be financial services and will be covered by the consumer protection and disclosure requirements of the Corporations Act 2001 and the ASIC Act 2001. This will ensure that, in providing these services, trustee corporations will be bound by the financial product disclosure licensing conduct advice and dispute resolution provisions of those acts. This will mean greater transparency for trustee corporations and far better protection for consumers.

The third area covered by the bill is debentures and promissory notes. The bill will amend the regulatory framework in the Corporations Act to align the regulation and promissory notes with debentures and also provide additional protection for investors by removing uncertainty in the law.

This is a much needed change following the collapse of Westpoint, which tried to use the issue of promissory notes with face values of at least $50,000 to avoid the operation of the law. Under the amendments, all promissory notes issued to retail clients will be subject to the same regulatory regime as debentures requiring the issue of a trust deed, the appointment of a trustee and the issue of a prospectus. The amendments will also enhance transparency for debenture holders by creating a publicly available register of debenture trustees. The register will be established and maintained by ASIC.

Since the introduction of the bill on 25 June 2009, there have been some proposed changes which are reflected in the parliamentary amendments I will move in the consideration in detail stage. In relation to margin loans, the amendments address the regulatory gap when an issuer of a margin loan uses a subsidiary or another organisation to sell the loan. Currently, the lenders of a margin lending facility can be exempt from obtaining an Australian financial services licence if they rely on another AFSL holder to meet their legal requirements. If so, they could potentially avoid responsible lending and other conduct obligations. To address this issue, I propose to introduce a regulation mechanism to enable issuers of a margin-lending facility to be removed from the exemption, thereby closing a potential avoidance loophole.

The regulation-making power will provide the flexibility to address different corporate structures in the margin-lending context and potentially other lending arrangements or products at a later stage. The amendments will also clarify the use of the term ‘provider’ in relation to the margin-lending facility.

In relation to trustee corporations, the government is seeking amendments to ensure that ASIC can access certain powers to regulate the industry. The amendments ensure that certain existing ASIC powers are available to it in relation to trust property held by trustee companies.

The amendments replicate or amend, as appropriate, certain existing ASIC powers that apply to financial products, so that they can be used in relation to trust property held by a trustee company. In essence, the amendments allow ASIC to obtain information about trust property outside a formal investigation under part 3, divisions 1 and 2 of the ASIC Act and certain information-gathering powers under part 3 of the ASIC Act. Further, the amendments allow ASIC to make certain orders in relation to trust property in certain circumstances. An anomaly in the ASIC Act in relation to unconscionable conduct in business transactions is also corrected.

In conclusion, by introducing national regulation for margin loans and improving the regulatory framework governing trustee corporations, debentures and promissory notes, this bill will make important changes to the regulatory framework, changes which will bring far greater consistency, clarity and fairness to our consumer credit regulatory regime. I commend the bill to the Main Committee.

Question agreed to.

Bill read a second time.