Margin loans, trustee companies and debentures
The main provisions which are introduced by the Corporations Amendment Regulations 2010 (No. 4) include the following.
- A detailed methodology is provided for distinguishing between retail and wholesale clients in relation to margin loans;
- A number of matters are prescribed that lenders must take into account when conducting the unsuitability assessment. These include important factors such as whether borrowers have provided their home as security for the loan, as this may put their homes at risk if they cannot service the loan;
- Specific arrangements are prescribed for situations where a credit limit breach occurs due to unilateral action by the borrower;
- It is specified that no unsuitability assessment is required for a non-recourse loan that is limited to investments in marketable securities as defined in the Act; and
- The contents of periodic statements for margin loans are defined.
The Australian Securities and Investments Commission Amendment Regulations 2010 (No. 2) ensure that the protections which apply to other financial products under the ASIC Act extend to margin loans. These include prohibitions, among other things, from engaging in unconscionable conduct generally, or engaging in conduct that is misleading or deceptive or is likely to mislead or deceive.
The Corporations Legislation Amendment (Financial Services Modernisation) Act 2009 received Royal Assent on 6 November 2009 and commenced on 1 January 2010.
As a result, providers of margin loans and associated advice will be required to be licensed, be members of an external dispute resolution scheme and comply with disclosure and notification requirements. Margin lenders will also be under the obligation to comply with responsible lending requirements.
A one year transitional period is being provided before the legislation becomes fully effective. This is to provide time for industry to prepare for the impact of the new responsible lending and other requirements, and also for ASIC to license all margin lenders and advisers.
