On Sunday, Senator Nick Sherry, Minister for Superannuation and Corporate Law, released details of the new national margin lending regulatory regime that is to be implemented by July 1, 2009.

The announcement follows the release of the Australian Government's Financial Services and Credit Reform Green Paper in June 2008, and the agreement at the March and July 2008 Council of Australian Governments' meetings to transfer consumer credit regulation to the Australian Commonwealth.

Currently, margin lending is not regulated by the Corporations Act 2001. Chapter 7 of the Corporations Act 2001 expressly excludes credit from the scope of the financial services regime. The Commonwealth Government's concern lies with consumers being unaware of the extent to which margin lending contracts place the risk of changes to market conditions on them.

The changes will result in extending the scope of Chapter 7 to include margin lending products. Specifically, the credit component of a margin loan transaction will be targeted.

Due to this reform, Senator Sherry has outlined some broad objectives for the new regulatory regime and under the present proposal margin lending providers will have to:

  • have an Australian Financial Services License (AFSL)
  • comply with general conduct standards, including the requirement to deal with investors efficiently, honestly and fairly
  • undertake appropriate disclosure to an investor, including provisions of a Product Disclosure Statement (PDS), a Statement of Advice (SOA) and ongoing reporting
  • have adequate arrangements for the management of conflicts
  • ensure representatives are adequately trained and competent to provide those services
  • be subject to enforcement measures regarding market manipulation, false or misleading statements, inducing investors to deal using misleading information, and engagement in dishonest, misleading or deceptive conduct, and
  • comply with responsible lending conduct provisions as part of broader consumer credit reforms covering all credit providers.

We will continue to monitor the progress of these reforms and provide updates when additional details are released. If you require any further assistance in understanding the new regulations and what changes you may need to undertake, please contact us.

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