Financial services laws too prescriptive
Financial services laws and regulations have to keep pace with financial technological developments, particularly in relation to peer-to-peer lending, according to Holley Nethercote.
Partner, Grant Holley, said the investment side of peer-to-peer lending, where investors pour money in, needs to be a registered managed investment scheme under the Corporations Act 2001, and this could be expensive.
Holley said the applications of the provisions, which was inserted into the Corporations Act by the Managed Investments Act in 1998, can be quite burdensome as they require a constitution for the scheme, compliance plans, a compliance committee, and they have to be a responsible entity if they do not have enough independent directors on the board.
Peer-to-peer lending attempts to match investors with credit using efficient technology in a way that is simple and cost effective.
"The managed investments scheme and everything that goes along with operating a registered managed investment scheme tends to be slow, expensive, and not really tailored to these kinds of technologies," Holley said.
Holley believes many components of financial services laws, including laws relating to peer-to-peer lending are too prescriptive at present.
"I think the law could be more principles-based, but less prescriptive. For people that are actually getting into peer-to-peer lending, I think the fit and proper tests should be quite high, so that you know you've got honest people with no poor backgrounds and so on getting involved in the industry," he said.
Prescriptive laws beget confusion and lead to the industry focusing on the prescription rather than meeting the actual objectives of that prescription, Holley added.
Holley also said the Australian Securities and Investments Commission could offer class orders for peer-to-peer lenders, which would mean that as long as they fulfilled their class order conditions, they would not have to comply with the managed investments scheme provisions.
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