Baillieu puts ASIC's Medcraft on the spot

Victorian assistance for victims of the Banksia collapse shows exactly where ASIC is lacking... and where the seeds lie for the next disaster.

The formal intervention yesterday by Victoria's Baillieu government to aid victims of the collapsed Banksia group proves beyond doubt that ASIC and its chairman, Greg Medcraft, must now step up to the plate and take complete responsibility for regulation of what has become the single most dangerous area of Australian finance.

Announcing a special working party linking Victorian community services and receivers McGrath McNicoll, deputy Victorian premier Peter Ryan told Business Spectator: "I'd prefer not to have to do this... but we wish to help regional communities manage the impact of the collapse."

Ryan intends to use his non-regulatory power to offer what is now an estimated 15,000 Banksia investors (up from earlier estimates of 3000) access to business support and psychological counselling.

And the need for that support is beyond doubt as the unfortunate clients of Banksia come to realize they put money in what many thought was something close to a bank but instead was a third-rate finance company operating in a regulatory vacuum.

In recent days it has transpired many investors had their superannuation tied up in the Kyabram-based firm that offered 'at call deposits' these investors have a long wait before they find out what money they will get back.

There is also early evidence that investors were encouraged to start DIY super funds and then to lodge cash belonging to the funds into Banskia accounts. (Business Spectator's sister site Eureka Report has recently launched a free website to inform savers on how optimise and protect superannuation savings at

Finance companies such as Banksia fall outside the exemplary APRA-controlled prudential regime enjoyed by banks, building societies and credit unions: Nonetheless many finance companies are bigger and more popular than their credit union rivals.

Ryan studiously avoids entangling the Baillieu government in the Banksia fiasco, suggesting regulation is strictly the concern of the Commonwealth government. But he does highlight the crying need for stronger regulation of advertising of finance companies: "I think it will be important in the future that we have more consistency in the messaging and terminology in these matters," he suggests.

Finance companies have been left to swing in the wind with only superficial disclosure-based regulation for the last two decades. This flawed regulatory structure followed the Wallis Inquiry of 1995 which assumed that unsophisticated investors could easily recognize the difference between an Approved Deposit Taking Institution and a finance company with capital protection standards that were utterly inadequate.

Clearly that view of regulation must now be reassessed. Medcraft as ASIC supremo has announced a special task force to examine what happened at Banksia ...but does ASIC really need to know much more?

Disclosure is not enough: ASIC has to seek and wield a new power that will offer clients of finance companies the sort of professional regulation they can reasonably expect from a credit union. Until it does there will be more Banksias and the next one might be well beyond the scope of a regional counselling service.

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