ASIC to investigate Banksia collapse and scrutinise unlisted debentures

An internal ASIC taskforce will investigate the collapse of Victorian non-bank lender and debenture issuer Banksia as well as consider regulation of the wider Australian unlisted debenture sector.

Banksia Securities collapsed last week placing $660 million in small investor savings at risk. The financier lent on debenture holders’ money as mortgages to fund property purchases.

Apart from Banksia, the other notable debenture issuer to collapse recently was NSW-based non-bank lender Provident Capital, with unsecured creditors voting to liquidate the $130 million sub-prime lender last week.

Debenture issuers unlike banks, building societies and credit unions are not generally regulated by APRA nor are there any prudential standards that apply.

The ASIC taskforce will be led in Melbourne by Commissioner John Price and will make its recommendations to Treasury.

“The failure of Banksia, an unlisted debenture company that has operated a mortgage financing business across a large part of regional Victoria, will affect the lives of many everyday Australians. ASIC wants to take a closer look as it is another area of retail-funded shadow banking,” says ASIC chairman Greg Medcraft.

“At the moment there are laws around disclosure and, to a limited extent, the conduct of debenture issuers. But we need to lift the regulatory intensity to make sure that investors are confident and informed.’

“The taskforce will review the extensive work we’ve done to date around the regulation of the unlisted debenture sector.

“The taskforce’s work may involve making recommendations to Treasury about law reform given we have pushed the existing conduct and disclosure regime to its limit.

“We will also work closely with Banksia receivers and managers McGrath Nicol to try and get the best result for Banksia investors and retail clients who Banksia provided credit to.

“Importantly, we’ll also continue to remind debenture trustees of their obligations as gatekeepers to protect investors and monitor debenture investments – particularly bad loans and liquidity problems,” says Medcraft.

Before the collapse of Banksia and Provident Capital, unlisted debenture issuers were on ASIC’s radar with the watchdog undertaking “general market reviews” of the sector and conducting “risk based surveillances on a small number of debenture issuers”.

ASIC is not a prudential regulator but will monitor disclosures made by debenture issuers.

This article first appeared on Property Observer.