THE connection in regional towns between professionals and debenture companies could mask the risky nature of non-banking institutions, the Melbourne-based Consumer Action law centre said.
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The centre’s policy and campaigns director Gerard Brody said that when professionals of high stature, such as lawyers and accountants, “are seen to put trust in risky finance offerings, it can lead others to put their confidence in them without doing their own homework”.
“Trust built on pre-existing relationships, or those with expertise and familiarity with the financial system can, in practice, override sensible financial behaviour, such as seeking to really understand the risks and benefits of investing,” Mr Brody said.
“What Banksia has shown is that our current regulatory system is insufficient to stop thousands of people losing their savings.
“More needs to be done by our regulators so that finance companies, through their practices, aren’t able to create the impression that they are banks.
“Prudential regulation, which sets standards enforced by Australian Prudential Regulation Authority (APRA) about capital, liquidity and governance, needs also to be considered.
“And it’s time we had another look at establishing a last resort compensation scheme to protect vulnerable investors,” Mr Brody said.
Unlisted debenture issuers, like Banksia, were not regulated by APRA, nor were there any prudential standards about the amount and quality of a company’s assets that applied, Consumer Action said.
“We’re concerned that, as things stand, debenture companies are allowed to look and feel like banks when they’re nowhere near as tightly regulated,” Mr Brody said.
Consumer Action said debenture companies’ obligations to provide written disclosure about the high risk nature of debenture investments in product information statements were undermined by the way some of the companies operated and presented themselves.
An example of the confusing image of debenture companies was their ability to rent bank-state-branch numbers, commonly known as BSB numbers, the centre said.
The use of BSB numbers as well as offering accounts that looked like regular savings accounts, and in-branch ATMs, could lead people to feel like they were depositing their money into a traditional bank account.
“It is timely to examine what rules and responsibility should be placed on entities selling and buying BSBs,” the centre said.
ehimmelreich@fairfaxmedia.com.au