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AFSA sharpens teeth as personal insolvency numbers rise

Regulation

A modernisation program will simplify the system for most so the regulator can focus on “bad actors”, chief executive says.

By Philip King 11 minute read

The Australian Financial Security Authority (AFSA) will “sharpen its regulatory posture” to maximise its impact as personal insolvencies head back towards pre-pandemic levels, chief executive Tim Beresford says.

He said a modernisation program was underway that would make it simpler for most bankrupts – typically consumers involving small amounts – to go through administration so AFSA could focus on those who misused the system.

And, addressing the Australian Restructuring Insolvency & Turnaround Association national conference on the Gold Coast last week, he called upon the profession to help stamp out “untrustworthy advisers”.

“We will not accept those who harm vulnerable people,” he said, “and you mustn’t either. We need your help to stamp out the bad actors in the personal insolvency.”

He said AFSA was a vital cog in the financial system that was rethinking how to tackle personal insolvencies that were expected to hit 14,000 this year, up from 10,000 in 2022–23.

“We oversee and regulate more than $18 billion of liabilities in the Australian credit system,” he said. “Our active regulation is vital to strengthening and protecting the personal insolvency ecosystem.

“We are shifting our regulatory posture to identify and address the current economic headwinds. To address changes in creditor behaviour. As well as meet community expectations regarding our collective social license to operate.

“We have kicked off a three-year service modernisation program to simplify our systems to make it easier for people to interact with our systems. For bankrupt clients go from dealing with eight systems down to one system.”

He said insolvencies number just 10,000 last year – down from a pre-pandemic average of 25,000 – and around 5,000 of those involved liabilities of less than $50,000.

Nine out of 10 of those were consumers who had run up debts on a credit card, through a personal loan or using buy now, pay later.

“Less than 10 per cent of that was business debt,” he said. “Inside that 5,000, 50 per cent of those – 2,500 – had assets less than $10,000. These bankrupts provide creditors no returns.”

He said the Australian system should learn from New Zealand’s No Asset Procedure (NAP) established 15 years ago, which had worked successfully during both the GFC and the pandemic.

“In effect, consumer debtors are given a quicker, fresh start. Their bankruptcy lasts for about one year and is only available once. Any future bankruptcies will be administered as normal.”

“Taking the NAP’s lead could allow debtors and creditors to swiftly return to their focus of more productive economic outcomes.”

Simplification for the majority would allow AFSA to focus on the problem users in the system.

On one hand were the seriously vulnerable.

“We would work with them, you would work with them, day in, day out,” he told the conference.

“They have financial stresses. But beyond financial stresses, they are also suffering other forms of stress, or abuse. Domestic violence. Physical, mental abuse, sexual abuse, mental health, physical health issues.”

At the other extreme were those who deliberately and unlawfully misused the system.

“Make no mistake – harm will not be tolerated. We will seek it out and we will prosecute it using surveillance, data and intelligence,” he said.

“Last month, we took strong regulatory action on registered debt agreement provider A&M Group Pty Ltd, trading as Debt Negotiators.

“As many of you in the room would recall in December last year … following an anonymous tip off and after an investigation from ourselves and a referral to ASIC, Debt Negotiators were fined $650,000.

“The court found that they had engaged in deceptive conduct and undue harassment of debtors who had missed payments.

“I, as the Inspector-General, have imposed additional conditions on Debt Negotiators. For the next two years, Debt Negotiators will be watched closely.

“And to give you a flavour of some of those conditions, they’ve been instructed to engage with an external consultant that will report to me on an audit of the company’s culture, its systems, its controls and report regularly to the Inspector General.

“They need to notify me of any personnel changes – in or out within six weeks. They are just some of those conditions … all costs are borne by Debt Negotiators.”

“Any failure by Debt Negotiators to these conditions will result in further regulatory action.”

“As a visible, modern and contemporary regulator, AFSA is taking a firm stance. We are sharpening our regulatory posture to maximise our impact and our reach.”

 

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Philip King

Philip King

AUTHOR

Philip King is editor of Accountants Daily and SMSF Adviser, the leading sources of news, insight, and educational content for professionals in the accounting and SMSF sectors.

Philip joined the titles in March 2022 and brings extensive experience from a variety of roles at The Australian national broadsheet daily, most recently as motoring editor. His background also takes in spells on diverse consumer and trade magazines.

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