The proposals have two broad aims. The first is to improve the financial strength of retail debenture issuing finance companies. The second is to more clearly differentiate debenture issuers from banks, building societies and credit unions that are regulated under APRA’s prudential framework.
The proposals involve:
- mandatory minimum capital and liquidity requirements;
- restricting the ability of issuers to offer ‘at call’ investments and use ‘bank-like’ terms to describe their products;
- improving on-going disclosure to investors; and
- enhancing the capacity of trustees to monitor the financial performance of issuers and compliance with their legal obligations.
Further details of the proposals are set out in the Attachment below.
Following consultation on the proposals, the Government and regulators will make a final decision on a new framework, including appropriate transitional arrangements.
Finance companies have been a significant source of loan finance in some regional areas. However, the recent collapse of Banksia Securities highlights the need to place the industry on a more sustainable footing and restore investor confidence.
In particular, investors need to appreciate that investments in finance companies carry higher risks and are not the same as deposits with ADIs that are actively supervised by APRA.
Minister Shorten’s Media Contact: Jessica Lindell 0408 642 804