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Regulation of Margin Loans-before and after the new amendments to the Corporations Act 2001 ( Cth )

Regulation of Margin Loans-before and after the new amendments to the Corporations Act 2001 ( Cth ). Overview. What are margin loans? What are the benefits and risks of margin loans? Margin lending trends Loopholes with case studies-Storm Financial

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Regulation of Margin Loans-before and after the new amendments to the Corporations Act 2001 ( Cth )

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  1. Regulation of Margin Loans-before and after the new amendments to the Corporations Act 2001 (Cth)

  2. Overview What are margin loans? What are the benefits and risks of margin loans? Margin lending trends Loopholes with case studies-Storm Financial Regulation of margin loans before the reforms Reforms under the Corporations Act 2001 FOFA reforms Impact of the reforms to retail clients, financial providers and the industry

  3. Margin loans What is a margin loan? Two main types of margin loans ۞ Standard margin loans ۞ Non-standard margin loans

  4. Margin lending trend (graph 1)

  5. Margin loans What are the benefits of margin lending?

  6. Risks of margin lending ۞ Alarge or sudden drop in the value of investments can bring the Loan to Value Ratio (LVR) to a level above the agreed limit, resulting in a Margin Call ۞ magnifies the potential for both gains and losses. ۞ Inability to pay the loan

  7. Margin lending gone sour-Case studies ۞ Storm Financial Refer to: ASIC v Bank of Queensland Ltd (2011) 86 ACSR 258; [2011] FCA 1361. ۞ Opes Prime Refer to:Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd (2008) 246 ALR 361.

  8. Regulation prior to reforms ۞ No direct regulation by CA or Uniform Consumer Credit Code ۞ Not a financial product ۞ Very few protections

  9. Loopholes in regulation ۞ Advice not suitable ۞ineffective disclosure ۞confusion surrounding notification of margin calls.

  10. Reforms under the Corporations Act 2001 (Cth) (CA) ۞Margin lendingis defined as a financial product for the purposes of Chapter 7 of the CA ۞ Australian Securities and Investments Commission (ASIC) has increased powers under ss913 CA

  11. Reforms cont… ۞ Strict licensing regime, s911A(i) (CA) ۞ Disclosure, s1012A, (CA), ASIC RG 219 ۞Notification of margin calls, s985M (CA)

  12. FOFA Reforms Firsttranche of the reforms covered: ۞ statutory best interests duty ۞compulsory renewal requirement (opt-in)

  13. FOFA reforms cont… ۞ Second tranche of reforms relate to conflicted remuneration. ۞ all commission payments from any financial services business

  14. Impact of reforms ۞ Industry ۞Financial providers ۞ Benefits to retail clients/consumers

  15. Conclusion ۞Reforms to reduce regulatory loopholes and restore investor confidence. Any Questions

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