Government promises ‘scalpel’ rather than ‘chainsaw’ approach as it gives APRA power to regulate non-banks
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Government promises ‘scalpel’ rather than ‘chainsaw’ approach as it gives APRA power to regulate non-banks
The Federal Government has released a draft bill for consultation which would extend APRA’s powers to non-banks.
Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017 will allow APRA to issue directives to non-bank lenders and penalise them if they refuse to comply, as APRA can currently do with banks. The bill would also allow APRA to collect data from non-banks, shining a light on a sector commonly referred to as ‘shadow banking’.
In a joint media statement, Treasury Scott Morrison and Minister for Revenue and Financial Services Kelly O’Dwyer noted that “the Turnbull Government’s practice is to approach financial risks with a scalpel rather than a chainsaw – this measure provides APRA a new scalpel to deal with risks specific to non-bank lenders.”
Would APRA actually use these powers?
APRA has issued several wide-reaching directives to banks in recent years, such as the 10% growth limit on investor lending and it is feared they could do the same for non-banks, removing brokers’ only remaining option for many clients.
The Bill’s wording is wide-reaching, allowing APRA to act “if APRA considers that an activity or activities engaged in by one 24 or more non-ADI lenders in relation to lending finance materially 25 contribute to risks of instability in the Australian financial system.”
However, APRA themselves have played down the degree of regulation. Appearing before the Senates Estimates Committee in late May, APRA chairman Wayne Byres explained that “if there is a systemic risk…APRA would have the capacity to introduce some rules which might help mitigate that. But that is very different to saying we take day-to-day responsibility for individual institutions.”
Non-banks are already regulated by ASIC and it appears APRA would need to consult its fellow regulator before acting.
How brokers might respond
Ex-Pepper CEO Patrick Tuttle has warned against “regulating the non-bank sector out of existence” and many non-banks have similar concerns.
Non-banks such as Pepper, Liberty and La Trobe Financial have profited from APRA’s handicapping of banks, with investors and non-residents looking to non-banks for finance. Should these lenders be held to the same rules as banks a large part of their value proposition would be lost.
In the forthcoming Brokers on Non-Banks survey, MPA asked brokers whether they’d continue to use non-banks even if they were more heavily regulated by APRA. The vast majority said they would, pointing towards excellent BDMs, quick turnaround times and lack of channel conflict as attractions of non-banks, beyond credit policy.
The Federal Government has released a draft bill for consultation which would extend APRA’s powers to non-banks.
Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017 will allow APRA to issue directives to non-bank lenders and penalise them if they refuse to comply, as APRA can currently do with banks. The bill would also allow APRA to collect data from non-banks, shining a light on a sector commonly referred to as ‘shadow banking’.
In a joint media statement, Treasury Scott Morrison and Minister for Revenue and Financial Services Kelly O’Dwyer noted that “the Turnbull Government’s practice is to approach financial risks with a scalpel rather than a chainsaw – this measure provides APRA a new scalpel to deal with risks specific to non-bank lenders.”
Would APRA actually use these powers?
APRA has issued several wide-reaching directives to banks in recent years, such as the 10% growth limit on investor lending and it is feared they could do the same for non-banks, removing brokers’ only remaining option for many clients.
The Bill’s wording is wide-reaching, allowing APRA to act “if APRA considers that an activity or activities engaged in by one 24 or more non-ADI lenders in relation to lending finance materially 25 contribute to risks of instability in the Australian financial system.”
However, APRA themselves have played down the degree of regulation. Appearing before the Senates Estimates Committee in late May, APRA chairman Wayne Byres explained that “if there is a systemic risk…APRA would have the capacity to introduce some rules which might help mitigate that. But that is very different to saying we take day-to-day responsibility for individual institutions.”
Non-banks are already regulated by ASIC and it appears APRA would need to consult its fellow regulator before acting.
How brokers might respond
Ex-Pepper CEO Patrick Tuttle has warned against “regulating the non-bank sector out of existence” and many non-banks have similar concerns.
Non-banks such as Pepper, Liberty and La Trobe Financial have profited from APRA’s handicapping of banks, with investors and non-residents looking to non-banks for finance. Should these lenders be held to the same rules as banks a large part of their value proposition would be lost.
In the forthcoming Brokers on Non-Banks survey, MPA asked brokers whether they’d continue to use non-banks even if they were more heavily regulated by APRA. The vast majority said they would, pointing towards excellent BDMs, quick turnaround times and lack of channel conflict as attractions of non-banks, beyond credit policy.
