ASIC REPORT 59
Equity release products
November 2005
Equity release products
http://download.asic.gov.au/media/1337312/Equity_release_report_exec_summary.pdf
Page 8 - Regulation
Products
The existing regulatory system was not designed to address the issues raised by equity release products,which take the form of a credit arrangement but neverthelesshave some of the attributes of an investment product.
At the product level, the principal vehicle for regulation of credit, the Uniform Consumer Credit Code (UCCC), does not provide for disclosure of risk, nor provide a mechanism for disclosing elements of the cost of the product, such as the forgoing of equity, that are not translatable into an interest rate. Finally it will not apply at all where the funds obtained are to be used for investment purposes.
The principal vehicle for the regulation of investment products, the Corporations Act 2001 (Corporations Act), has limited application to some home reversion and shared appreciation products, depending on their terms, but generally does not apply to reverse mortgage products.
Advice
International research shows that advice on equity release products is often inadequate. For instance, recent research by the Financial Services Authority (FSA) in the United Kingdom shows that more than 70% of product providers, independent financial advisers and mortgage brokers do not gather enough relevant information about their customers to assess their suitability for the product, and more than 60% of advisers do not advise consumers about the downsides of equity release.2
Industry statistics indicate that most equity release products are being distributed by mortgage brokers who are, at present, far less regulated than advisers in other sectors of the financial services industry, although there are proposals for further regulation at the state level.
Although shared with the states, ASIC does have clear jurisdiction under the Australian Securities and Investment Commission Act 2001 (ASIC Act) in relation to any misleading, deceptive and/or unconscionable conduct in the promotion, distribution and sale of equity release products and it will exercise this jurisdiction fully.