By Mark Bland, Partner

The Senate Economics References Committee (Committee) has delivered ‘Bitter Harvest’, a 310 page report into agribusiness managed investment schemes (MIS) following its two year inquiry. Access the report here.

The report addresses both forestry and horticultural agribusiness MIS, a wider remit than its original terms of reference, and delivers 24 recommendations (Recommendations).

The Committee’s primary concern in its inquiry was retail investors, many of whom were first time investors and not highly literate in financial matters^[1]. This is reflected in its report and the Recommendations the bulk of which target issues directly affecting consumers and financial advice with limited direct focus on underlying structural or policy issues.

In summary, the Recommendations are that:

1. The ATO and ASIC strengthen their efforts to ensure that product rulings do not give retail investors the impression that the product in question has been sanctioned by either body.
2. ASIC vigilantly monitors the operation of FOFA legislation and advise the government on weaknesses that would allow incentive payments to creep back into the financial advice sector.
3. Treasury should examine the obligations on accountants or tax agents providing advice on investments in agribusiness MIS to ensure retail investors are covered by the protections that exist under FOFA.
4. The government explores ways to lift financial literacy standards including by reviewing school curricula in consultation with states and territories and by making Financial Literacy a standing item on the COAG agenda.
5. The government gives high priority to developing and implementing a mandatory code of conduct for financial advice providers.
6. The government considers amending banning provisions with a view to ensuring that a banned person cannot be a director, manager or hold a position of influence in a company providing a financial service or in a credit business.
7. The government considers legislative amendments to give ASIC the power to immediately suspend a financial adviser where ASIC suspects that person has engaged in egregious misconduct.
8. The government consults with industry on ways to improve the presentation of a product’s risks in PDSs and to consider expanding ASIC’s powers to require additional content for PDSs for agribusiness MIS, and that ASIC ought to consider and advise the government as to whether risk measures used in Europe and Canada could be adopted for Australian PDSs.
9. The government considers renaming ‘general advice’ and strengthening consumer protection safeguards around product information presented during product issuers’ promotional events.
10. ASIC strengthens the language used in regulatory guides dealing with general advice.
11. The government’s consideration of ‘general advice’ to include the role of referral networks and to determine whether stronger regulations are required.
12. The government implements measures to ensure IOSCO’s statement of principles governing integrity and ethical behaviour apply to research houses and subject matter experts who provide information to the market on financial products.
13. KordaMentha continues to resolve matters through its hardship program with respect to outstanding loans from Timbercorp Finance.
14. Bendigo and Adelaide Bank supports the appointment of an independent hardship advocate to assist borrowers to resolve loan matters relating to the Great Southern schemes.
15. The government initiates discussions regarding national legislation to bring credit provided for investment purposes under current responsible lending obligations.
16. The government considers ways to ensure that borrowers understand they are taking out a recourse loan to finance their agribusiness MIS, and to examine the merits of imposing a maximum LVR for agribusiness MIS borrowing.
17. The Banking Code of Conduct include an undertaking that the banks adhere to responsible lending practices in providing finance to a retail investor to invest.
18. The Victorian Legal Services Commissioner and Legal Services Board thoroughly review the conduct of the lawyers who advised retail investors in collapsed agribusiness MIS to cease repayments on outstanding debts.
19. The government review the penalties for breaches of advisers and AFSL holders’ obligations and ensure that the penalties align with the seriousness of the breach and serve as an effective deterrent under the proposed legislation governing product issuers.
20. The government use CAMAC’s report as the platform for further discussion and consultation with the industry with a view to introducing legislative reforms to remedy the identified shortcomings in managing an MIS in financial difficulties and the winding-up of collapsed schemes.
21. Treasury commission a review to better inform the policy around providing tax concessions for agribusiness MIS (Tax Review).
22. The proposed Tax Review consider the incentives offered to investors in agribusiness ventures by other countries such as the UK.
23. The government request the Productivity Commissioner to inquire into and report on the use of taxation incentives in agribusiness MIS to determine whether there is merit in reforming the system of tax incentives, and if so, what those reforms should be.
24. ASIC review the complaints made against advisers and accountants who engaged in alleged unscrupulous practices when recommending investments in agribusiness MIS to identify weaknesses in the current legislation that impeded ASIC from taking effective action, and to examine the adequacy of penalties available to ASIC.

While a number of the recommendations provide for a direct course of action – in particular those in respect of financial advice, lending practices and increased intervention powers for ASIC, those addressing policy and potential legislative reform are less clear, with a number of these recommending further reviews, inquiries and consultation.

The lengthy report needs to be properly digested to understand the Recommendations in context and the place of this report in future reform.

[1] Senate Economics References Committee report into agribusiness managed investment schemes, ‘Bitter Harvest’, Preamble, p. xvii.