Non-banks to march to the beat of APRA’s drum

The prudential regulator could soon be probing Australia’s non-bank lenders and penalising alternative mortgage providers for failing to comply with new lending rules.

Treasury’s exposure draft for non-ADI lender rules, released Monday, is the first step towards APRA having regulatory powers over Australia’s non-banks.

The federal government announced on budget night that it would act to ensure APRA is able to respond flexibly to financial and housing market developments that pose a risk to financial stability, by providing APRA with new powers in respect of the provision of credit by entities that are not authorised deposit-taking institutions (non-ADI lenders), to complement APRA’s existing powers in respect of ADIs.

Treasury is now seeking stakeholder views on the draft Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017 (the draft Bill) which implements this measure.

In a statement released Monday, Treasury explained that the draft bill would amend the Banking Act 1959 to provide APRA with a power to make rules concerning the lending activities of non-ADI lenders for the purpose of addressing financial stability risks.

It would also provide APRA with “a new power to issue a direction to a non-ADI lender should the entity fail to comply with a non-ADI lender rule, and introduce penalties for non-ADI lenders that fail to comply with a direction by APRA.”

Further, the bill would amend the Financial Sector (Collection of Data) Act 2001 to allow APRA “to collect data from non-ADI lenders for the purposes of monitoring their activities and determining when to use its new powers.”

According to the draft, if APRA considers that an activity or activities engaged in by one or more non-ADI lenders in relation to lending finance materially contribute to risks of instability in the Australian financial system, APRA may, in writing, determine rules in relation to matters relating to lending finance, to be complied with by:

(a) all non-ADI lenders; or
(b) a specified class of non-ADI lenders; or
(c) one or more specified non-ADI lenders.

However, the bill also states that before making a rule, or varying or revoking a rule, APRA must consult with ASIC.

According to Patrick Tuttle, the former CEO of non-bank lender Pepper, the government’s actions could create “regulatory chaos” between APRA and ASIC.

“What problem is the government seeking to fix? Fair enough that APRA has implemented macroprudential controls to limit the overall proportion of ADI lending directed towards investment property loans and interest-only loans. This has eased some excessive lending volumes in these loan products across the broader market, particularly within the major banks,” Mr Tuttle said.

“That said, is the government, through the auspices of APRA, now seeking to effectively dictate consumer credit and lending policies and practices for all non-bank financial institutions in Australia? If so, when was this objective ever stipulated in APRA’s mandate? Isn’t ASIC responsible for overseeing Australia’s non-bank financial institutions, their compliance with responsible lending practices, and their adherence to the consumer credit code?”

The consultation on the draft bill will close on Monday, 14 August 2017.

[Related: APRA controls on non-banks could trigger 'credit crunch']

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