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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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