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Chapter 1 - Introduction
Background
1.1
On 8 December
2004, the Parliamentary Joint Committee on Corporations and
Financial Services adopted terms of reference for an inquiry into the
regulation of property investment advice by the Commonwealth for inquiry and report
by 23 June 2005.
1.2
The terms of reference for the inquiry are:
The Committee will inquire into the regulation of property
investment advice by the Commonwealth, with reference to:
- the effectiveness of current regulation
(including the Trade Practices Act 1974,
the ASIC Act and the Corporations Act 2001) of the property
investment advice industry in protecting consumers;
- allegations that property investment
advisers engage in behaviour including:
- characterisation of their activities (for
instance, as "education seminars") in order to avoid regulation;
- habitual use of high pressure selling
techniques in order to induce investment decisions;
- failure to disclose interests they may
have in properties they are selling;
- failure to disclose commissions and fees
associated with their services; and
- failure to provide appropriate
disclosure of downside risk associated with the property or financial products
they recommend;
- whether it is appropriate for property
investment advisers to simultaneously sell an interest in property and
financial products enabling such purchases;
- advantages and disadvantages of possible
models for reform of the property investment advice industry including:
- national coverage through uniform state
and territory legislation;
- Commonwealth
legislation; and
- a scheme of self-regulation of property
investment advisers on a national basis; and
- whether current legal processes provide
effective and easily accessible remedies to consumers in dispute with property
investment advisers.
1.3
The Committee took the view that it was not its role in
this inquiry to address individual cases involving consumers but rather to
examine the overall regulatory scheme relating to the property investment
advice industry. However, the Committee
did take individual cases into account to the extent to which they provided
illustrative examples of evidence provided to it.
1.4
The Committee is aware that the Ministerial Council on
Consumer Affairs (MCCA) established a working party on property investment
advice and released a discussion paper in August 2004. While the Committee understood
that it was likely that there would be some parallels between the MCCA working
party's examination of the property investment advice industry and this inquiry,
the Committee expected to make a number of distinct contributions, including:
- examining the issue from a slightly different
perspective to the MCCA (which approached the issue from a consumer affairs
perspective – although informed by broader considerations of efficiently
functioning financial markets);
- conducting a more public process than the MCCA
(the MCCA did not release its submissions publicly);
- assisting the MCCA's consideration of the issue;
and
- assisting the Commonwealth Government and the
Parliament in considering any Commonwealth role or contribution suggested by
the MCCA through the Council of Australian Governments.
Conduct of the inquiry
1.5
The Committee advertised the inquiry in The Australian newspaper, and details of
the inquiry were placed on the Committee's website. The Committee also wrote to
a number of organisations and individuals alerting them to the inquiry and
inviting them to make a submission.
1.6
The Committee received 26 submissions, and these are
listed at Appendix 1. Submissions were placed on the Committee's website.
1.7
The Committee held public hearings on the Gold Coast on
13 April 2005, in Sydney
on 15 April 2005, and in Canberra
on 28 and 29 April 2005. A
list of witnesses who appeared before the Committee at each hearing is listed
at Appendix 2. Copies of the Hansard transcript are available through the Internet
at http://www.aph.gov.au/hansard.
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