By Stuart Washington and Clancy Yeates
BANKS, the regulator and Storm Financial's founders are at a roadblock about who should be accountable for the failure of margin calls to reach margin loan borrowers.
Worse, there is no regulatory response that would avoid a repeat of the failure to call many Storm Financial margin loan customers about their margin loans.
Many of Storm's 4000 margin loan borrowers were never contacted by their banks about margin calls when the market fell last October.
The incident highlights a grey area of the law in which borrowers can be left ignorant of margin calls and margin lenders can then deny all responsibility.
A lawyer at Baker & McKenzie, Bill Fuggle, said margin loans were largely outside the regulatory net, making them a case of "buyer beware".
The chairman of the Australian Securities and Investments Commission, Tony D'Aloisio, has also highlighted extensive conditions in margin loan contracts, allowing lenders to say, ''I have a term in a contract that enables me to do that''. Macquarie Bank's chief executive, Richard Sheppard, has denied the bank can be held responsible for its failure to call up to 1050 Storm Financial margin loan borrowers because he says the bank made the margin calls to Storm Financial.
The stance was attacked by Senator Brett Mason at a parliamentary inquiry into Storm's collapse last week. "The bottom line is the delay in action caused people to lose their homes and livelihoods,'' he said. ''Why aren't you assisting in relation to that?"
Macquarie has strongly denied Storm acted as an agent for the bank, denied the margin call was to protect customers, and denied it should pay compensation.
On Macquarie's evidence to the inquiry, its margin calls were not passed on by Storm for some weeks until October 29 last year, when it started contacting clients directly.
The Commonwealth Bank has also said it was Storm's responsibility to pass on margin calls, and it did not start contacting clients directly until some time in December.
Commonwealth Bank's position on compensating its margin loan borrowers is due to be determined in its dispute resolution process. Former High Court judge Ian Callinan is due to hear arguments on November 29.
But Commonwealth Bank's chief executive, Ralph Norris, said last week the bank was changing its margin call procedures to mandatorily include the borrower.
Storm Financial's founders, Emmanuel and Julie Cassimatis, have denied it was Storm's responsibility to pass on margin calls.
But it has become increasingly clear Storm was a margin call black hole from early last October, failing to pass on margin calls to Macquarie Bank and Commonwealth Bank borrowers.
The biggest regulatory change in relation to margin loans was passed last month, bringing margin loans within a national consumer credit code and extending for the first time the legal requirement to be a responsible lender to margin loan products.