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Connexus : Issue 42
Learning from Banksia The regulatory spotlight is finally shining on the practices of the 'shadow banking' sector. BY BARBARA DRURY squeaky," says Peter Challis, chief executive of WAW Credit Union, one of a number of mutuals that operated in the same region as Banksia. “Now the wheel is squeaky and they will be made to operate with higher pr udential regulation. "Outside of APR A [Australian Prudential Regulation Authority] oversight, there is not a role for them as deposit-taking institutions. I think most will have to get out of that market.” The problem with debenture issuers is that they have been allowed to act like the proverbial cuckoo in the nest. To the untrained eye they look like banks, and advertisements using banking terms such as 'deposit', 'savings account' and 'at call account' further blur the distinction. This is where regulatory issues arise. While APRA tightly regulates authorised deposit-taking institutions (ADIs) such as banks, mutual banks, credit unions and building societies, it doesn't have responsibility for debenture issuers, which are monitored by ASIC. "Shadow banks take money from consumers who only see the interest rate and assume they are protected when in reality they are not," says Challis. “It is unfair and unrealistic to think consumers can tell the difference When debenture issuer Banksia Securities collapsed last October with debts of $660 million, it was the latest in a long line of corporate failures in the ‘shadow banking’ sector. Now hopes are high for regulatory changes to prevent it happening again. The Australian Securities and Investments Commission (ASIC) taskforce into the troubled sector has made some early recommendations to Treasury and industry observers expect some decisions by the end of the fnancial year. "For seven years we've been saying close them down or regulate them, but the wheels have not been 18 Connexus NEWS