Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697636282849.pdf (Australia)
House of Representatives Standing Committee on Economics inquiry into home ownership Submission by the Australian Securities and Investments Commission July 2015 Home OwnershipSubmission 39 House of Representatives Standing Committee on Economics inquiry into home ownership: Submission by ASIC Home ownership: ASIC’s role ASIC is Australia’s corporate, markets, financial services and consumer credit regulator.
ASIC contributes to Australia’s economic reputation and wellbeing by ensuring that Australia’s financial markets are fair and transparent, supported by confident and informed investors and consumers.

We do this through our work in a number of areas, including promoting compliance with and enforcing the law, assisting and providing guidance to our stakeholders, facilitating business, promoting financial literacy, and detecting and responding to market issues and risks.
Following the global financial crisis, it is readily apparent that the performance of the real economy, including the housing sector, relies not only on the existence of a financial sector, but also on investor and consumer confidence in that sector.
This submission to the House of Representatives Standing Committee on Economics inquiry into home ownership describes ASIC’s role in relation to promoting confident and informed investors and consumers by: (a) regulating consumer credit and financial service providers that may assist consumers and investors in obtaining home ownership, whether for occupation or investment purposes; and (b) undertaking financial literacy and education initiatives such as ASIC’s MoneySmart website, to ensure consumers are informed and confident to make financial decisions, including those relating to home ownership.
Consumer credit and financial services 6 7 8 Generally, individual consumers purchasing a house, whether for owner occupation or investment purposes, will require finance.

In addition, individuals who invest in housing may choose to do so through a self- managed superannuation fund (SMSF) or a managed investment scheme, and possibly as the result of financial advice.
Consumer credit ASIC commenced the regulation of consumer credit on 1 July 2010 under the National Consumer Credit Protection Act 2009 (the National Credit Act).
Before 1 July 2010, consumer credit was primarily regulated by the states and territories, with the transfer of jurisdiction to the Commonwealth © Australian Securities and Investments Commission July 2015 Page 2 Home OwnershipSubmission 39 House of Representatives Standing Committee on Economics inquiry into home ownership: Submission by ASIC 9 10 11 12 following a series of recommendations from various sources.
These included a 2008 report by the Productivity Commission1 and an inquiry into home lending by the Standing Committee on Economics in 20072 in response to concerns that credit was too easily available and that many Australians were over committed and facing financial hardship.
While recommendations by the Standing Committee on Economics in 2007 regarding Commonwealth regulation of consumer credit and the operation of external dispute resolution schemes were subsequently implemented, the third recommendation of that committee has not—namely, that the Australian Bureau of Statistics begin collecting and publishing annual data on home repossessions, including data on the cause, so that public debate on home lending could be better informed.
Data such as this, or on loan defaults and their causes more generally, may also be of interest in the context of home ownership.
When the National Credit Act commenced in 2010, in addition to transferring primary jurisdiction for the regulation of consumer credit from the states to the Commonwealth, it: (a) extended the regulation of consumer credit to also include credit for residential property investment; (b) established licensing requirements for lenders and finance brokers, including conduct obligations, competency standards and mandatory membership of an ASIC-approved external dispute resolution scheme; and (c) introduced responsible lending obligations to ensure that consumers only obtain credit that meets their objectives and that they are able to repay without substantial hardship.
ASIC’s administration of the credit licensing regime helps ensure that the public can have confidence in the competency and conduct of licensed lenders and finance brokers, and that should consumers have a dispute they can access an independent external dispute resolution service.
Innovation in markets has the potential to provide significant consumer benefits, such as those that arose from increased competition in the home lending market when finance brokers and non-bank lenders (sourcing funds from securitisation markets) entered the market.
However, whether the potential benefits from new innovations are realised, as well as the potential pace and sustainability of new innovations (noting some of the difficulties faced by non-bank lenders immediately after the onset of the global financial crisis), depends to a large extent on the confidence of consumers.

1 Productivity Commission, Review of Australia’s consumer policy framework, April 2008.
2 House of Representatives Standing Committee on Economics, Inquiry into home loan lending practices and the processes used to deal with people in financial difficulty, September 2007.
© Australian Securities and Investments Commission July 2015 Page 3 Home OwnershipSubmission 39 House of Representatives Standing Committee on Economics inquiry into home ownership: Submission by ASIC 13 14 The responsible lending obligations also help ensure that once a person becomes a home owner, they stay a home owner, by requiring credit licensees to only assist persons obtain credit that they can repay without substantial hardship.
If at the commencement of the loan, it is expected a consumer would need to sell their principal place of residence to meet their financial obligations, there is a rebuttable presumption that the loan will cause substantial hardship.

Since the commencement of the National Credit Act, ASIC has been active in seeking to ensure compliance with the responsible lending obligations in the home finance sector through guidance, surveillance and enforcement action.
15 Regulatory activities in relation to responsible lending have included: (a) publication of Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209); (b) (c) reviews of finance brokers and lenders providing ‘low doc’ home loans and associated reports,3 which identified potential compliance risks and ways in which credit licensees in the home finance sector could reduce their risk of non-compliance; surveillances of individual credit licensees resulting in changes to loan assessment processes, such as those obtained in relation to Wide Bay Australia Limited, now Auswide Bank Limited,4 and Bank of Queensland Limited;5 (d) enforcement actions resulting in the cancellation of seven credit licences and banning of 41 persons, largely in relation to the falsification of loan documents; and (e) our current review of interest-only lending6 (see also paragraphs 26–28 on interagency cooperation).
The National Credit Act also retains provisions from the previous state- based legislation enabling consumers to apply to lenders for variations to their repayment obligations if they are experiencing temporary hardship (e.g.

that arising from unexpected illness or unemployment).

If consumers are not satisfied with a lender’s response, they then have access to external dispute resolution.
These provisions play a significant role in ensuring consumer confidence when borrowing money, particularly when one considers the large sums of 16 17 3 See Report 262 Review of credit assistance providers’ responsible lending conduct focusing on ‘low doc’ home loans (REP 262), Report 330 Review of licensed credit assistance providers monitoring and supervision of credit representatives (REP 330) and Report 410 Review of ‘low doc’ home lending following the introduction of the responsible lending obligations (REP 410).
4 See Media Release (15-013MR) ASIC concerns prompt Wide Bay to review lending standards (3 February 2015).

5 See Media Release (15-125MR) ASIC concerns prompt Bank of Queensland to improve lending practices (25 May 2015).

6 See Media Release (14-329MR) ASIC to investigate interest-only loans (9 December 2014).
© Australian Securities and Investments Commission July 2015 Page 4 Home OwnershipSubmission 39 House of Representatives Standing Committee on Economics inquiry into home ownership: Submission by ASIC money generally required for the purchase of a home.

Consequently, one of ASIC’s strategic priorities for 2015–16 focuses on responsible lending conduct and hardship arrangements in the context of home lending.
Property investment through SMSFs Real estate is not a financial product for the purposes of the Corporations Act 2001 (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (ASIC Act), and the states have primary responsibility for regulating the real estate and building industries.

As an alternative to investing directly in residential property, individual investors may choose to invest through an SMSF.
SMSFs are the fastest growing sector of the superannuation industry and investment in property through SMSFs is consequently also growing.

As at March 2015, the value of residential real property investments through SMSFs was $21.78 billion, or 3.7% of total Australian and overseas assets, up from $19.49 billion, or 3.6% of total Australian and overseas assets, in March 2014.
There has been an increase in investment in residential real property through SMSFs of 11.78% from March 2014 to March 2015, and an increase of 58.69% since March 2011.

ASIC’s primary role in relation to SMSFs is to regulate the gatekeepers—the financial planners, accountants, auditors and providers of products and services to SMSFs.

We want to ensure that those who are advising retail clients about establishing and investing through SMSFs are providing good quality advice.
We consider that gatekeepers have a critically important role in ensuring the overall health of the SMSF sector is sound.
ASIC has publicly warned investors about misleading advertisements regarding the use of SMSFs.7 ASIC has also taken regulatory action in relation to the promotion of investment in residential property through SMSFs in a number of instances, including Money Choice,8 Charterhill9 and Park Trent.10 See Media Release (13-285MR) ASIC warns consumers about ads recommending SMSFs purchase properties through government scheme (22 October 2013).
8 See Media Release (13-106MR) ASIC cancels Money Choice's licence and bans its director Matthew George (15 May 2013).

9 See Media Release (14-024MR) Court freezes assets and restrains travel following collapse of the Charterhill group (6 February 2014) and Media Release (15-048MR) Charterhill director George Nowak, banned from providing financial services (10 March 2015).
10 See Media Release (14-299MR) ASIC seeks court order to stop property promoter from providing unlicensed financial product advice on SMSFs (11 November 2014).
© Australian Securities and Investments Commission July 2015 Page 5 Home OwnershipSubmission 39 House of Representatives Standing Committee on Economics inquiry into home ownership: Submission by ASIC 24 25 26 27 28 Interagency cooperation ASIC acknowledges the role of and regularly liaises with many other agencies with responsibility for promoting home ownership and ensuring consumer confidence in the financial system.
Australian Consumer Law regulators ASIC works with Australian Consumer Law regulators, including relevant state agencies responsible for regulation of the real estate and building industries, to identify emerging issues and, where appropriate, coordinate our activities.
Council of Financial Regulators Through the Council of Financial Regulators (CFR), ASIC, the Australian Prudential Regulation Authority (APRA), the Reserve Bank of Australia (RBA) and Treasury are working together to monitor, assess and respond to risks in the housing market.

ASIC is conducting surveillance into the provision of interest-only loans as part of a broader review by regulators into home-lending standards.
The surveillance is looking at the conduct of banks, including the big four, and non-bank lenders and how they are complying with important consumer protection laws, including their responsible lending obligations.

ASIC has been working closely with APRA, and APRA has participated in on-site meetings with a number of lenders.

The review follows concerns by the CFR about higher risk lending, following strong house price growth in Sydney and Melbourne.
ASIC expects to make its findings public before the end of 2015.

Financial literacy and consumer education 29 30 31 Financial literacy is also key to ensuring people are confident and informed when borrowing and investing.

ASIC is responsible for leading and coordinating the National Financial Literacy Strategy,11 and undertakes a range of consumer education programs to help financial consumers and retail investors manage and plan their personal finances.
One of our primary tools in educating consumers is ASIC’s MoneySmart website (www.moneysmart.gov.au), which was visited over five million times in 2014–15.

11 See www.financialliteracy.gov.au/.
© Australian Securities and Investments Commission July 2015 Page 6 Home OwnershipSubmission 39 House of Representatives Standing Committee on Economics inquiry into home ownership: Submission by ASIC 32 According to our most recent awareness and usage research conducted in February 2015: (a) 28% of adult Australians are aware of ASIC’s MoneySmart; (b) 85% of users rate the site as ‘useful’ or ‘extremely useful’; and (c) 89% of users report that they took positive action on their finances after visiting ASIC’s MoneySmart.
33 In the context of housing, ASIC’s MoneySmart contains tips on: (a) buying a home; (b) saving for a home; (c) choosing a home loan; (d) using a finance broker; (e) managing debts, including specific information for persons experiencing problems repaying their home loan; and (f) SMSFs and investing in residential property.
34 35 ASIC’s MoneySmart also includes over 30 online tools and apps to help people manage their finances, including a budget planner which has been viewed over one million times over the last year and a mortgage calculator which has been viewed nearly 600,000 times in the last year.

ASIC’s MoneySmart also has 18 videos on mortgages and home loan topics, case studies and links to relevant state authorities responsible for the supervision of the real estate and building industries.
© Australian Securities and Investments Commission July 2015 Page 7 Home OwnershipSubmission 39 House of Representatives Standing Committee on Economics inquiry into home ownership: Submission by ASIC Key terms Term APRA ASIC CFR Meaning in this document Australian Prudential Regulation Authority Australian Securities and Investments Commission The Council of Financial Regulators—the coordinating body for Australia’s main financial regulatory agencies, comprising the RBA (chair), APRA, ASIC and Treasury Corporations Act Corporations Act 2001, including regulations made for the purposes of that Act credit licence An Australian credit licence under s35 of the National Credit Act that authorises a licensee to engage in particular credit activities credit licensee A person who holds an Australian credit licence under s35 of the National Credit Act external dispute resolution scheme An external dispute resolution scheme approved by ASIC under the Corporations Act (see s912A(2)(b) and 1017G(2)(b)) and/or the National Credit Act (see s11(1)(a)) in accordance with our requirements in Regulatory Guide 139 Approval and oversight of external complaints resolution schemes (RG 139) National Credit Act National Consumer Credit Protection Act 2009 SMSF Self-managed superannuation fund © Australian Securities and Investments Commission July 2015 Page 8 Home OwnershipSubmission 39