Non-banks are scrambling to gain exemptions from the proposed reforms, which could prohibit European investors from buying Australian mortgage-backed securities
The non-bank lending sector is working with the federal government to gain exemptions from European Union reforms that could restrict many investors in Europe from buying Australian securitised loans.
Many non-banks are already feeling pressure from heightened competition with deposit-taking institutions, which can access the Reserve Bank’s term funding facility at a rate of only 10 basis points. Non-banks have argued that the difference in access gives banks an unfair advantage. The proposed EU reforms are yet another blow to non-banks’ bottom line, according to a report by The Australian.
The reforms would have the unintended consequence of prohibiting some classes of investors in Europe from buying Australian residential mortgage-backed securities. With securitisation markets a top funding source for non-banks, the proposed reforms have sparked protests that Australia shouldn’t be penalised by the proposed changes.
Under the reforms, Australia is deemed a jurisdiction that hasn’t abolished what the EU considers a “harmful tax regime,” according to The Australian. At issue is Australia’s offshore banking unit (OBU) regime, which facilitates a concessional tax rate of 10% rather than the prevailing rate of 30%. The federal government has said that it would amend or abolish the OBU regime, but that has yet to occur.
The proposed reforms also flag countries that have strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes, according to The Australian. Real estate agents, conveyancers and lawyers aren’t caught by Australia’s framework – a fact that won’t be viewed favourably by the EU.
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The securitisation industry is pushing for a compromise that will allow Australia to be at least partially exempted from the reform framework. If the reforms in their current form are enacted, some EU investors would risk breaching due-diligence requirements if they bought Australian securitisation issuance.
Treasurer Josh Frydenberg told The Australian last week that the government was engaging with European policymakers to try to reach an agreement.
“The government understands the importance of the securitisation market as a source of funding for smaller lenders, which are a valuable source of competition and innovation in the Australian financial system,” he said. “It is important to note that the proposed changes are still subject to deliberations by European politicians. The government continues to engage with our European counterparts.”
Thanks to Brexit, the UK isn’t part of the reform process, so investors there won’t be bound by the changes if they take effect, The Australian reported.
