The collapse of unlisted mortgage companies: a regulatory dilemma

Purpose - Policy issues associated with the regulation of the unlisted debenture market have been highlighted in recent times with the collapse of a number of regionally based mortgage companies. The purpose of this paper is to analyse the decline and demise of the unlisted debenture market between 2007-2013 with particular reference to the effectiveness of the regulatory regime in stabilising the industry and protecting investors’ interests. Design/methodology/approach - A database was constructed which reflected the total population of unlisted mortgage companies in the financial sector. A snapshot approach was used to assess the extent to which these companies complied with regulatory provisions. Findings - Findings suggest the regulatory process allowed these companies to continue operating despite not complying with the relevant Australian Securities and Investments Commission benchmarks. In the light of the current inquiry into the financial system, the research suggests that a re-evaluation of the regulatory approach is timely. Research limitations/implications - This research is restricted to a study of one category of debenture issuers (issuers of mortgage finance). It is based on reports required by regulatory authorities. It does not provide an analysis of the motivations of investors in these companies. Practical/implications - This research has implications for the implementation of regulatory change in respect to oversight of shadow banking activities. It suggested that a passive approach to regulation is not sufficient to ensure that the interests of investors are fully protected. Originality/value - No prior research has systematically examined the unlisted mortgage and analysed the borrowing and lending activities of companies that have failed and those that have survived.