New margin lending regime revealed

The Federal Government has revealed the shape of the new rules that will surround margin lending, with the release of the draft regulations.

The draft regulations, which appear to strongly reflect the concerns raised about margin lending following the collapse of firms like Storm Financial, were released by the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, and the Minister for Finance and Deregulation, Lindsay Tanner.

Commenting on the draft, Bowen said the new regime would reduce costs and complexity for business while ensuring better protection for investors through simple, effective disclosure of product information.

Noting the degree to which the new regime was aimed at ensuring consumers understand what they are getting into, the minister said the example Product Disclosure Statement (PDS) contained in the draft used “stark language to highlight the potential ‘bottom line’ for the consumer”.

“It shows that it is possible to produce financial disclosure documents that are short, clear and easy to read without any diminution of investor protection,” he said.

The draft regulations themselves state that the standard margin lending facility PDS “must contain a summary of all the key information that a client needs to know before deciding to purchase a standard margin lending facility product”.

However, while prescribing headings and content for PDSs, the new regulations also allow providers the flexibility of incorporation by reference.