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No logic to 'archaic' ADI law, says Firstmac

Firstmac has criticised the prudential regulator for enforcing a rule prohibiting the lender from obtaining a banking licence.

Under the current laws Firstmac is precluded from having an ADI licence on the grounds it is 100 per cent owned by one family.

The Financial Sector (Shareholdings) Act 1998 (the FSSA) restricts individual ownership to 15 per cent of an ADI.

“APRA has talked about moving in line with global guidelines, but this law doesn’t exist anywhere else in the world,” Firstmac chief financial officer James Austin told Mortgage Business.

“You do find yourself scratching your head as to what the purpose of it is,” Mr Austin said, adding that while the laws are in place for capital raising purposes, mutual ADIs often fail to raise capital from their shareholders.

“If you look to the mutual ADIs, their shareholders are actually lenders, so they don’t have the ability to raise capital,” Mr Austin said.

“A mutual can effectively only raise capital by earning and retaining profits, which limits their ability to grow.

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“Given the limits on their capital raising ability, why then impose this 15 per cent shareholding for a listed entity? It just doesn’t seem particularly logical.

“I just wonder if it is one of those archaic laws that has been in place for a long time and no one really knows what the point of it is.”

Mr Austin’s comments reflect those of Firstmac founder and managing director Kim Canon in a submission to the Financial System Inquiry (FSI).

“No other country in the world imposes this ownership restriction, which effectively acts as a barrier to entry for groups such as Firstmac wishing to transition,” Mr Cannon said in the submission.

The lender currently relies on RMBS issues for funding and has a new transaction for the US market currently underway.

“Our intention is to continue to go to each of the main jurisdictions on a rotation basis, spreading our sourcing of funds and getting the most diversified base as possible,” Mr Austin said.

“We actually have a transaction that is underway at the moment for the US market,” he said.

While the RMBS market remains healthy, Mr Austin said that Firstmac will argue for the ADI shareholder limit to be removed or relaxed if it can demonstrate its ability to raise capital.

“We would certainly promote that and if the limit was relaxed we would be looking to take on an ADI status by bringing on investors into our shareholding,” he said.

Regulation has been a key theme of the FSI, which will publish an interim report next month.

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