Chris Hayes (Werriwa, Australian Labor Party) Share this | Hansard source

I commend the contribution of the member for Fadden. He is a member of the committee that has been looking into Storm Financial and the effect on many lenders when margin calls were made, and that inquiry has turned everybody’s attention to these issues. Through the proposed amendment of the Corporations Act, this government is implementing the reforms necessary to ensure that responsible financial lending and consumer practices are advanced in this country. I commend the Minister for Financial Services, Superannuation and Corporate Law for delivering an amendment bill at this stage. Not only does this step take us closer to the commitments that were made at COAG but it will help ensure the modernisation of a body of financial lending that has for far too long gone unchecked.

The Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 comes about as a direct recommendation of the Australian Securities and Investment Commission. It is an area of financial services that is not yet adequately regulated by the current corporations legislation. Most importantly, the provisions included in the bill complement ASIC’s existing authority in two areas: margin lending and trustee companies. Not only will the provisions ensure more responsible lending practices and prudent regulation but they will ultimately serve to protect and strengthen consumer protection in these financial services areas. There are substantial benefits to the realisation of these reforms. Their implementation is necessary to give protection to the many who utilise these services but are vulnerable because of inadequate legislation.

The member for Fadden alluded to Storm Financial. That matter is being considered by a parliamentary committee at the moment, but those of us who follow it in the papers would know that over 3,000 people have been affected. People in their retirement were encouraged to take out loans affecting their housing which were subject to a margin call. Three thousand families that thought they were making provision for their retirement and long-term economic security now find themselves very much in the forefront of a financial catastrophe. That catastrophe is not of the making of the economic downturn but a direct result of a margin call being made, as can occur, and those 3,000 families’ exposure was such that they were significantly affected. That is why this is an important and prudent piece of legislation at this time.

Over the past decade the use of margin lending has increased dramatically in Australia and, despite the surge in this type of lending, it has really escaped consumer credit regulation and consequently a gap has occurred. There is no point simply focussing on issues such as Storm Financial. We are all being encouraged to look at ways that we could actually make retirement incomes and security, and I think that is a good thing. What has occurred through this process in the practice of margin lending is that areas have been left with a significant degree of exposure because legislation has not been developed that regulates in that respect of a lending practice.

In implementing the changes the amendments have targeted lenders by requiring both them and their advisers to be licensed. As a consequence, through ASIC, they will be regulated not only now but into the future. Through that process we can at least ensure consistency and a high level of compliance through the licensing arrangements. Licensing components will provide enhanced, comprehensive and consistent protection for consumers entering into margin loans and will encourage the improvement of standards for margin loans offered by lenders.

The proposal also includes provision for guarantees of an enhanced level of responsible lending by preventing lenders from approving unsuitable loans to consumers that may put them at risk of losing their own homes. This new margin loan disclosure document, introduced by these changes, will allow borrowers to be informed in a concise manner of the facts they need to know before entering into such a significant arrangement as a margin loan agreement. This, combined with a dispute resolution process, will actually be able to deliver an independent, expedient and free dispute resolution service. Again, that will act to protect consumers from unnecessary harmful lending practices that have the potential to destroy a family’s future. The government has made extensive efforts to ensure that there is an adequate transition period for the industry and its stakeholders, and a 12-month buffer period has been created to do that.

The second aspect of this legislation, as I indicated at the outset, involves legislation relating to trust property and trustee companies. It will alleviate many of the concerns raised by ASIC by extending the existing powers that apply to these financial products. The extension of their authority will allow ASIC to access vital information relating to trust property and will increase the control over trustee companies. Allowing ASIC to access greater amounts of information, such as details of the persons involved in a transaction about a trust property, will allow better judgments as to whether they pursue a formal investigation. As a result of increasing their control over trustee companies, ASIC will have the authority over the trust property. In certain circumstances this will prevent the disposal of such property.

The other significant aspect is that with the current state based systems, where a trustee company operates in more than one state we find companies being subject to compliance with differing inconsistent authorisations and reporting requirements. By creating a national framework of trustee companies under the authority of ASIC the unnecessary barriers to entry for companies will be eliminated, as well as the compliance costs and burdens associated with that.

The benefits of national regulation will also be felt by consumers. The traditional services of trustee companies will be regarded as financial services, and will fall under the consumer protection and disclosure requirements dictated under the Corporations Act 2001. By binding trustee corporations to existing financial product disclosure, licensing, conduct, advice and dispute resolution, these reforms will all move to significantly protect consumers. I commend the legislation to the House.

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