Concerns over equity release product design regulation

Speculation has emerged about the Federal Government’s regulation of product design within the reverse mortgage sector, prompting claims by the Senior Australians Equity Release Association (SEQUAL) chief executive, Kevin Conlon, that it would have a harmful effect on the industry.

A regulatory review process covering reverse mortgages is currently underway, with product disclosure, product design and consumer financial literacy being the three broad areas being discussed.

In the weeks leading up to the Federal Election, the Government promised to provide greater disclosure of equity release products and statutory protection against negative equity — with the two changes to be implemented by mid 2012.

Conlon said although the association had gone on the record supporting these initiatives, it would be concerned if other aspects, such as product design, became an element of the regulatory review, rather than allowing legitimate market processes to prevail.

“[Statutory protection for the no negative equity guarantee] is a critical aspect of consumer protection which, because the SEQUAL membership is not compulsory, cannot be reliably delivered across the industry unless there is regulatory change,” Conlon said.

“However, product design is driven by not just competitive tension but also the availability of funding, and influencing product design can have an effect on not only consumer protection but the availability of the products,” Conlon said.

There is a real need to motivate financial advisers, who had been missing in action, to provide advice about equity release transactions, Conlon said.

He added that advisers needed to know what was required of them when advising on equity release products and that the appropriate scope of advice needed to be developed soon for the equity release market to take off.

Treasury’s briefing folder, The Red Book, was recently made available to the public, and indicated that SEQUAL was “likely to resist Government regulation beyond those imposed by the SEQUAL Code of Conduct and Guidelines”.

“Regulation for its own sake would be harmful to consumers in that it would place an unnecessary regulatory burden on an industry that has already demonstrated the capacity to operate efficiently and ethically,” Conlon said.

The number of players in this sector has dropped, with the SEQUAL membership falling from a peak of 16 members before the global financial crisis to the current level of 10 members — some of which are not active in the market.