In a joint submission to the Treasury, Pepper Group, Liberty Financial, Firstmac and RESIMAC addressed these potential new APRA powers.
While the lenders appreciated the need for financial stability and sound lending practices, they pointed out that non-ADI lenders and ADIs are significantly different.
“While non-ADI lenders provide a range of essential functions and products to all Australians, they do not provide as broad a range of products, nor do they accept deposits, nor are they responsible for key pieces of banking infrastructure. Non-ADI lenders promote healthy competition within the finance sector, and service areas and customers that ADIs lenders cannot or are unable to service.”
The regulation of non-banks should thus be limited to “exceptional circumstances” if activity from a non-ADI lender is deemed to threaten the stability of the financial system.
The Treasury’s recent exposure draft on these proposed powers creates “unnecessary regulatory intervention” and “regulatory uncertainty” within the sector, they said.
“It casts an extremely wide net, both in terms of the proposed entities to be regulated and the level of regulatory oversight. We recommend that the legislation be modified to facilitate a more targeted regulatory approach to avoid causing unintended instability in the capital markets, the non-ADI lending sector and the Australian economy more generally.”
The submission, which was prepared by legal firm King & Wood Mallesons, proposes a number of specifics with regards to any future regulatory powers granted to APRA:
- The definition of non-ADI lenders should be restricted only to those engaging in lending finance or in activities which directly result in the origination of loans
- When assessing the impact of non-ADI lending practices on financial stability, the activities of non-ADI lenders related to ADIs should be excluded
- Specific details of when APRA can create a ‘rule’ to further regulate a non-ADI lender should be contained either within the legislation or the guidance notes accompanying that rule
- APRA will assess competitive issues within the relevant markets prior to exercising its rule-making power
- This rule-making power will be limited to target macro-prudential concerns rather than regulating overall business aspects of the non-bank lender
- APRA must consult with any affected non-ADI lender prior to creating a rule relating to that firm
- A transitional period will be held before a rule comes into effect to ensure that the lender can meet its commitments to borrowers prior to any restrictions
- Proposed rules that apply to the non-ADI lending sector will be no worse than any specific rule applying to the ADI sector
- Directions to refrain from lending activities should only be made in the event of repeated and severe non-compliance by the lender
“Given the nature of a non-ADI lender and its industry, the rule making and enforcement power needs to be more specific, and different from the prudential standard and oversight approach taken with ADIs,” the joint submission said.
The statement continued, saying that vague regulation would negatively affect the confidence of the investors funding non-bank lenders, reducing the sustainability of the lender’s business model and thus restricting competition.
“In the absence of certainty as to when, how and why APRA may regulate, investors may question the non-ADI business model which may reduce the availability of capital markets funding and increase funding costs and limit the availability of warehouse funding, which in turn may have the unintended adverse effect on the level of loans and pricing in the retail lending market.”