ASIC has put forward a number of proposals to strengthen the regulation of the debenture sector, including introducing minimum capital and liquidity requirements.
Key points:
- Debenture sector in the spotlight following recent collapses e.g. Banksia
- ASIC proposals seek to improve the financial strength of issuers
- Better investor understanding about debenture investments is a priority.
The move follows a number of high-profile collapses in the sector, including Banksia Securities Ltd, the subsequent ASIC debenture taskforce and the Government’s December 2012 announcement about law reform for this $4 billion sector.
ASIC will consult on:
- mandatory minimum capital and liquidity requirements for debenture issuers
- proposals to strengthen disclosure to investors about debenture issuers
- clarifying the powers and duties of debenture trustees, and the role of auditors.
‘At the time of the failure of Banksia ASIC made it clear we had pushed the existing conduct and disclosure regime to its limit, and debenture issuers who accept retail investments and then on-lend that money like a bank should be required to have a more sustainable financial position,’ ASIC Commissioner John Price said.
‘This is consistent with growing international interest in regulating ‘shadow banking’ more effectively. We also consider debenture trustees may need greater powers so they can perform their supervisory role more effectively right across the debenture industry.’
Mr Price said while the proposals would help ensure debenture issuers are more financially resilient, ‘they will not prevent failures’.
‘For this reason, it is important to understand debenture investments are higher risk than a deposit with a bank, building society or credit union that is prudentially supervised by APRA,’ Mr Price said.