ASIC to get tough on credit providers under new national regime


EXCLUSIVE: Damon Kitney From: The Australian September 03, 2010

Credit providers face strict new compliance reviews and applicants for new licences will be subject to rigorous checks. The corporate regulator will step up its enforcement of a new national credit regime to ensure applications are accurate.

After taking over surveillance of the new regime on July 1, the Australian Securities & Investments Commission has issued 11 regulatory guides and nine information sheets to help businesses understand their obligations.

“Going forward, our focus is on smoothly transitioning the industry to the new credit regime and ensuring our oversight of the industry is effective,” ASIC chairman Tony D’Aloisio will tell an American Chamber of Commerce lunch in Melbourne today.

ASIC now enforces responsible lending obligations for brokers, non-bank lenders and non-registered finance companies offering home and personal loans, credit cards, leases, overdrafts and line-of-credit accounts. More than 14,700 credit businesses have registered with ASIC under the regime and the regulator has issued 132 licences. More than 400 credit licence applications have been received.

Credit providers had until June 30 to register under the laws and they now have until December 31 to apply for a credit licence or face penalties.

Mr D’Aloisio will reveal today that ASIC plans to police the application of responsible lending obligations to credit-card applications and credit-card limit increases, and will undertake risk-based compliance reviews of credit businesses. It also plans to undertake what he calls “verification surveillances” to make sure the information in licence applications is accurate and to ensure credit providers are not operating outside the system, “either intentionally or inadvertently”.

In his speech on ASIC’s forward work program, Mr D’Aloisio will defend the regulator’s litigation strategy after its failure to bring successful cases against AWB, One.Tel or Fortescue Metals Group directors after months or years of preparation. ASIC was forced to draw down $24 million of a $30m special-enforcement fund to finance the three high-profile cases. “Commercial transactions are complex and ASIC cannot allow complexity to be a reason for not running a case,” Mr D’Aloisio will say today. He singles out Queensland financial adviser Storm Financial, which collapsed in January last year, with investors losing more than an estimated $3 billion. The collapse is still under investigation.

“For example, Storm Financial is one of the most complex cases I have come across in my 30-year experience, much of which was as a commercial lawyer,” he will say. “It has potentially some 3000 individual actions covering investments by each investor over many years. One of the things we are doing to manage these complex cases is to seek to mediate them early (as we did in Opes Prime and Westpoint and are seeking to do in Storm). This minimises cost. “However, even if complex, if we need to run the case, we will.”

ASIC has been criticised for not acting earlier to prevent corporate collapses such as Storm. But Mr D’Aloisio claims ASIC is using available market intelligence “through selective risk-based surveillance”, to identify potential hazards earlier. He will say ASIC’s role is limited and can be likened to a road traffic authority or police force. “We oversee the system but, unfortunately, accidents can still happen,” he will say.

“Unlicensed drivers can be on the road. We also look for roads where accidents can happen and try and fix them ahead of time, and we are constantly looking (through a wide range of surveillance work) for unlicensed drivers. But . . . ASIC is not resourced, to be on every road and at every intersection.”

Just over a month ago ASIC also took over market surveillance from the Australian Securities Exchange, after a move by the former government to introduce new competition for the ASX. But that move could be potentially under a cloud amid ongoing uncertainty about whether Labor or the Coalition will form a minority government.

ASIC is focusing on how the Australian market might evolve in any case.

“If competition is pursued, our objective will be to consult with the market on the structure, technology and regulatory framework for effective competition,” Mr D’Aloisio says.

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