New Inquiry into Financial Products & Services and the new regulatory regime for Margin Lending

A new inquiry (Inquiry) into the underlying issues associated with the recent string of financial services company collapses was announced yesterday by Mr Bernie Ripoll MP, Chair of the Parliamentary Joint Committee on Corporations and Financial Services. The Inquiry will address issues connected with the collapse of companies such as Storm Financial and MFS with particular reference to:

  • the role of financial advisers
  • the general regulatory environment for these products and services
  • the role played by commission arrangements relating to product sales and advice, including the potential for conflicts of interest, the need for appropriate disclosure, and remuneration models for financial advisers
  • the role played by marketing and advertising campaigns
  • the adequacy of licensing arrangements for those who sold the products and services
  • the appropriateness of information and advice provided to consumers considering investing in those products and services, and how the interests of consumers can best be served
  • consumer education and understanding of these financial products and services
  • the adequacy of professional indemnity insurance arrangements for those who sold the products and services, and the impact on consumers and
  • the need for any legislative or regulatory change.

The Committee will table its report to Parliament by 23 November 2009. Submissions to the inquiry close on 31 July 2009, but public hearings will commence prior to this date and early submissions are encouraged.
The Inquiry will focus specifically on non superannuation products and services.
Mr Ripoll also noted that:

  • given the current Global Financial Crisis and the recent collapses of high profile companies it was very important to ensure that the regulatory regime and regulator were adequately equipped to ensure that Australian investors have confidence in financial products and services
  • the Committee is concerned that some operators may not be meeting their obligations or that the regulatory environment is not sufficient to deal with the number and type of financial services and products that exist
  • potential conflicts of interest exist in some financial products and the associated advisory services. In many cases, providers own or control distribution with various types of “incentives” such as commissions, rebates, shelf fees or complex fee structures and
  • a further issue is that current law only requires an adviser to “know the client” rather than to know what is in the “best interests of the client”. This creates difficulty in making fully informed decisions and providing effective competition.

Margin Lending

The Inquiry was welcomed and supported by Senator Nick Sherry, Minister for Superannuation and Corporate Law. In a separate media release, Senator Sherry noted earlier announcements by the government that margin lending will be regulated under the Corporations Act 2001 and that the new national regime will be introduced into Parliament by the middle of this year. The new regime will include:

  • adding margin loans as a “financial product” under Chapter 7 of the Corporations Act
  • dramatically increasing the levels of simple, plain-English consumer disclosure, including the compulsory disclosure of commissions
  • imposing a tough responsible lending obligation on all margin lenders and
  • boosting consumer protections and options for redress by requiring margin lenders to be licensed and properly trained and members of a external disputes body.

We see this as part of the changing regulatory landscape which follows the Green Paper on Financial Services & Credit Reform released by the government in June last year and a swinging of the pendulum to increased investor protection. It remains to be seen how effective new measures will be and what the effect will be on the cost of advice and products.
We will keep you posted with further developments.
The Hall & Wilcox Financial Services team have a strong understanding of the challenges and issues that clients face in the financial services industry. The team provides original, timely and commercial advice based on the latest developments across all areas of the financial services sector.


Harry New

Harry leads our financial services team and focuses extensively on financial services law and corporate advisory.

John Bassilios

John Bassilios

Partner & Fintech and Blockchain Lead

John has broad experience in financial services, funds management, blockchain, crypto, web3 and corporate law.

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