Regulatory burden increases for margin lenders
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Companies providing margin loans will have an obligation to check the validity of the capital backing being offered by retail borrowers under new legislative requirements being introduced by the Federal Government.
The Minister for Superannuation and Corporate Law, Senator Nick Sherry, has made clear the higher burden of fact checking on margin lenders, saying he does not want to see a repeat of some of issues that arose out of the collapse of Storm Financial.
He said the obligation on margin lenders would be part of tailored responsible lending obligations that would include a requirement for the ultimate lender to know whether the capital being brought to the table by the retail borrower was in fact theirs or was debt, such as equity from a home.
“In such cases the lender will be required to assess what I call the ‘true loan to value ratio’,” Sherry said.
He said conservatively-geared margin lending might have a role in a balanced investment strategy but it was critical that potential investors understood the risks associated with margin lending and were fully informed about how margin lending worked in both rising and falling markets.
AUTHOR
Mike Taylor
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