Shadowbanks under rules spotlight
Financial Services Minister Bill Shorten said at the weekend that the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority needed to consult more widely with industry early next year on proposals to better regulate the debenture industry.
The move follows the $660 million collapse of Banksia Securities in October, and comes just days after non-bank lender Southern Finance finalised its quick fire sale to Bendigo and Adelaide Bank - a sale that was designed to prevent a run on Southern Finance by spooked investors.
The proposals include the introduction of mandatory minimum capital and liquidity requirements for retail debenture issuers, and restrictions on the ability of debenture issuers to offer "at call" investments or to use "bank-like" terms to describe their products. They also include proposals to improve continuous disclosure to investors, and to allow trustees to better monitor issuers' financial performance and compliance with their legal obligations.
Mr Shorten said the proposals were designed to reduce the likelihood of debenture issuers failing as a result of poor lending decisions or a run by investors.
They also aimed to more clearly differentiate debenture issuers from banks, building societies and credit unions that are regulated under APRA's prudential framework, he said.
"The recent collapse of Banksia Securities highlights the need to place the industry on a more sustainable footing and restore investor confidence," Mr Shorten said. "Investors need to appreciate that investments in finance companies carry higher risks and are not the same as deposits with ADIs [authorised deposit-taking institutions] that are actively supervised by APRA."
The International Monetary Fund in November warned that Australia needed to tighten its rules allowing non-bank lenders to offer banking services without any oversight from the banking regulator.
Bendigo and Adelaide Bank announced on Friday that it would acquire the $290 million loan book and other assets from Southern Finance, with the purchase price to repay Southern Finance noteholders.
Frequently Asked Questions about this Article…
Australia's regulators are focusing on the shadow banking sector—non-bank finance companies that issue debentures—because recent failures have shown risks for retail investors. The push aims to bring better oversight, limit misleading 'bank-like' descriptions and reduce the chance of runs or collapses that can harm ordinary savers.
The regulatory drive followed the $660 million collapse of Banksia Securities in October and a fast sale of non-bank lender Southern Finance to Bendigo and Adelaide Bank, moves that exposed vulnerabilities in debenture issuers and sparked calls for stronger rules to protect investors.
The Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) will jointly develop the plans. Financial Services Minister Bill Shorten announced the consultation and proposed reforms.
Proposals include mandatory minimum capital and liquidity requirements for retail debenture issuers, restrictions on offering 'at call' investments or using 'bank-like' language, improved continuous disclosure to investors, and stronger powers for trustees to monitor issuers' financial performance and legal compliance.
The reforms aim to make clear that debenture issuers are not the same as authorised deposit-taking institutions (ADIs). By restricting bank-like terms and imposing capital, liquidity and disclosure standards, regulators want to prevent confusion and ensure investors understand these products carry higher risks than bank deposits.
Bendigo and Adelaide Bank completed a quick purchase of Southern Finance's $290 million loan book and other assets. The acquisition was structured so the purchase price could be used to repay Southern Finance noteholders and to calm investor concerns.
The International Monetary Fund (IMF) warned in November that Australia should tighten rules allowing non‑bank lenders to offer banking services without APRA oversight, highlighting systemic risks from lightly regulated finance companies.
The article stresses investors should recognise that finance company investments and debentures carry higher risk than deposits with APRA‑regulated ADIs. Be cautious about 'at call' claims or bank‑like marketing, seek clear disclosure, and watch for regulatory changes that may affect issuer stability and protections.
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