The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP,has introduced the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 into Parliament.
The Bill addresses three key areas of financial services regulation:
- Margin lending
- Trustee companies
- Debentures and promissory notes
The new regime will make margin loans subject to the investor protection regime in the Corporations Act. It requires margin lenders and advisers to obtain a licence and be subject to supervision and enforcement by ASIC. It will also give borrowers access to free external dispute resolution services where they have a dispute with their provider.
Margin loan lenders will be subject to responsible lending requirements which will only allow them to provide a margin loan if they are reasonably sure that the borrower is able to afford the loan without suffering substantial hardship. A new provision is included which clarifies whether lenders or financial advisers are responsible for notifying borrowers of margin calls. There will be a 12 month transition period.
The Commonwealth assumes responsibility for the regulation of trustee companies under a single, standard, national regulatory regime.
Traditional trustee company services will be regarded as financial services under Chapter 7 of the Corporations Act, and trustee companies will be required to hold an Australian financial services licence covering the provision of the relevant services.
The amendments will also protect consumers by establishing a national consumer protection and disclosure regime under the Corporations Act and the ASIC Act. Trustee companies will also need internal and external dispute resolution mechanisms to resolve complaints.
The legislation provides that fees must be fully disclosed to the public via the internet. Fees charged to non-charitable trust clients are limited to the trustee company’s latest published schedule of fees.
Also, fees charged to charitable trusts and foundations will be regulated to ensure that beneficiaries of these trusts are protected. Specifically, fees charged to “new client” charitable trusts will remain subject to capping based on the Victorian Trustee Companies Act 1984. “Existing client” charitable trusts will have their fee levels frozen to ensure the fees do not rise as a result of the new regime.
The Bill amends the regulation of debentures and promissory notes and creates a register of debenture trustees.
The changes harmonise the legal regime to require all retail debentures and promissory notes to be subject to the consumer disclosure and protection measures currently applying to debentures. This includes the requirement to have a trust deed and trustee arrangements, and to issue a full prospectus.
ASIC will be required to create and maintain the register of debenture trustees, which will be available for viewing by the public.