Dodgy lenders in the spotlight
Finance brokers and margin lenders fear being squeezed out of business as the federal government prepares to fast track the regulation of credit and investment services to SMEs.
After years of glacial progress in making laws to keep up with the dodgy practices of credit providers, finance brokers and margin lenders, Nick Sherry can now move to a more efficient regulation of all these activities under the umbrella of the national Financial Services Regulation.
Sherry, who is Minister for Superannuation and Corporate Law, also has the power to extend the reach of consumer credit laws beyond personal and household credit to encompass investment loans and lending to small and medium sized businesses.
Extending the scope of consumer protection to investment loans and SMEs will probably have to wait until after the Commonwealth has bedded down the takeover of the Uniform Consumer Credit Code and the Finance Brokers Draft Bill.
The states and territories gave the green light for the Commonwealth to takeover regulation of consumer credit and finance broking at last week's meeting of the Council of Australian Governments.
The COAG communiqu said the Commonwealth takeover "will provide for a consistent regime that extinguishes the gaps and conflicts that may exist in the current regime”.
Currently the states and territories regulate credit and consumer lending through the Uniform Consumer Credit Code. In addition, the states and territories have spent the past four years developing a uniform law for mortgage and finance broking.
The Commonwealth takeover will put Sherry under pressure. He made some rash commitments earlier this year to have an implementation plan ready by the end of this year and introduce the new national regime by the end of 2009.
Realists familiar with the difficulties in having new laws passed and registration and licensing systems put in place reckon Sherry is far too ambitious and it will be 2010 before the national regime is in place.
In the short term the focus for industry, the states and territories will be how Treasury goes about the task of taking over the regulation of consumer credit and finance broking.
One approach, recommended by Sherry's Green Paper is for the Commonwealth to assume responsibility for all forms of credit including mortgages and other forms of consumer credit such as credit cards, car loans and other personal loans under the umbrella of FSR.
Senior figures in the mortgage broking industry are worried that if Sherry puts finance brokers under FSR and makes them abide by the same advice requirements as financial planners the world of commerce will come to a stop.
Others say that FSR, despite its problems and shortcomings, has successfully covered financial products and services and that this is a regulatory model more than capable of handling consumer credit and broking simultaneously.
One argument, that resonates with some states, is that the national regulatory regime should meet three basic requirements – disclosure; licenses and conduct; and enforcement. Under that approach there is no need for sector specific legislation.
Discussion on these key issues will be held over the next few months through a COAG working group at secretarial level. It is hoped that the bureaucrats at the next level down will be involved and pass on the nuts and bolts of how the current systems works.
The difficulty for the states, territories and industry is that, at this stage, they don't know what Sherry and Treasury will be implementing. Will it be FSR? Will it be a direct translation of the current uniform credit code? Or, will there be a more staged approach? And, what about finance brokers? Will Treasury adopt the draft bill and pass it separately, or start from scratch?
Mortgage brokers argue that lending is totally different to giving advice on financial products and that regulation of the two activities should be separated. They are fearful that the quality of advice test used for financial products under FSR will be imposed on finance brokers and others giving advice on mortgages and margin loans.
However, there are plenty of anomalies that highlight the need for competitive neutrality in regulation. For example why should someone getting a mortgage to buy a home be protected by the credit code and not be protected when they buy an investment property across the road?
One of the less obvious ramifications of the COAG decision to bring the regulation of credit and finance broking under Commonwealth control is the tougher compliance and enforcement regime that is likely under the supervision of the Australian Securities and Investment Commission.
Whether it is tougher than the current regime or not, industry can expect to pay for the costs to ASIC of running registration, licensing, compliance and enforcement through "user pays" fees and charges.
Sherry, who is Minister for Superannuation and Corporate Law, also has the power to extend the reach of consumer credit laws beyond personal and household credit to encompass investment loans and lending to small and medium sized businesses.
Extending the scope of consumer protection to investment loans and SMEs will probably have to wait until after the Commonwealth has bedded down the takeover of the Uniform Consumer Credit Code and the Finance Brokers Draft Bill.
The states and territories gave the green light for the Commonwealth to takeover regulation of consumer credit and finance broking at last week's meeting of the Council of Australian Governments.
The COAG communiqu said the Commonwealth takeover "will provide for a consistent regime that extinguishes the gaps and conflicts that may exist in the current regime”.
Currently the states and territories regulate credit and consumer lending through the Uniform Consumer Credit Code. In addition, the states and territories have spent the past four years developing a uniform law for mortgage and finance broking.
The Commonwealth takeover will put Sherry under pressure. He made some rash commitments earlier this year to have an implementation plan ready by the end of this year and introduce the new national regime by the end of 2009.
Realists familiar with the difficulties in having new laws passed and registration and licensing systems put in place reckon Sherry is far too ambitious and it will be 2010 before the national regime is in place.
In the short term the focus for industry, the states and territories will be how Treasury goes about the task of taking over the regulation of consumer credit and finance broking.
One approach, recommended by Sherry's Green Paper is for the Commonwealth to assume responsibility for all forms of credit including mortgages and other forms of consumer credit such as credit cards, car loans and other personal loans under the umbrella of FSR.
Senior figures in the mortgage broking industry are worried that if Sherry puts finance brokers under FSR and makes them abide by the same advice requirements as financial planners the world of commerce will come to a stop.
Others say that FSR, despite its problems and shortcomings, has successfully covered financial products and services and that this is a regulatory model more than capable of handling consumer credit and broking simultaneously.
One argument, that resonates with some states, is that the national regulatory regime should meet three basic requirements – disclosure; licenses and conduct; and enforcement. Under that approach there is no need for sector specific legislation.
Discussion on these key issues will be held over the next few months through a COAG working group at secretarial level. It is hoped that the bureaucrats at the next level down will be involved and pass on the nuts and bolts of how the current systems works.
The difficulty for the states, territories and industry is that, at this stage, they don't know what Sherry and Treasury will be implementing. Will it be FSR? Will it be a direct translation of the current uniform credit code? Or, will there be a more staged approach? And, what about finance brokers? Will Treasury adopt the draft bill and pass it separately, or start from scratch?
Mortgage brokers argue that lending is totally different to giving advice on financial products and that regulation of the two activities should be separated. They are fearful that the quality of advice test used for financial products under FSR will be imposed on finance brokers and others giving advice on mortgages and margin loans.
However, there are plenty of anomalies that highlight the need for competitive neutrality in regulation. For example why should someone getting a mortgage to buy a home be protected by the credit code and not be protected when they buy an investment property across the road?
One of the less obvious ramifications of the COAG decision to bring the regulation of credit and finance broking under Commonwealth control is the tougher compliance and enforcement regime that is likely under the supervision of the Australian Securities and Investment Commission.
Whether it is tougher than the current regime or not, industry can expect to pay for the costs to ASIC of running registration, licensing, compliance and enforcement through "user pays" fees and charges.
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