ballarat courier pic of ian hankin.

Ian Hankin.

RECEIVERS of failed non-bank Banksia Financial Group won't be able to interview its former chairman Ian Hankin - because he died on August 8, just weeks before Banksia Securities collapsed - when his BMW collided with a truck on the Western Highway at Burrumbeet, a town in western Victoria.

Three weeks earlier, on July 18, Hankin, who was a partner at law firm Heinz & Partners, drove his Mercedes-Benz into a truck on the Midland Highway at Scotsburn. The Mercedes was a write-off but Hankin was taken by air ambulance after suffering minor injuries.

At the time of the accident, the local newspaper, The Courier, in Ballarat reported that the truck driver ''appeared to have taken evasive action to avoid a head-on collision but struck the late model Mercedes on the front passenger side''.

The accidents are currently being reviewed by the Ballarat Highway Patrol, which will then decide whether to refer the case for a coronial inquiry. Graeme Hills, the managing partner in the law firm that Hankin worked at for 35 years, was unavailable to comment.

Banksia and law firm Heinz have strong links as it formed the genesis of what became Banksia in 1999 when four finance companies, including Hedon Investments, which was Heinz's finance company, merged. At the time of the merger Hankin was chief executive of Hedon. When Hedon merged with Kyabram Housing Investments and two other finance companies, Hankin joined the Banksia board and became chairman in 2004. The same month that Hankin died, Banksia's chief executive, Patrick Godfrey retired. Godfrey, who had set up Kyabram Housing Investments in 1968, ran the merged entity for 46 years.

Less than three months later, Banksia Securities collapsed owing investors $660 million. Days later, a second entity, Cherry Fund, collapsed owing $10 million.

Banksia's collapse has put the spotlight back on a sector that is very risky and which has had more than its fair share of collapses in recent years.

It is not hard to see why. The sad reality is this sector of the finance industry is poorly regulated. It is regulated by ASIC and unlike the banks the funds don't have to comply with mandatory capital requirements.

As long as the funds disclose that they don't meet suggested capital ratios or liquidity levels in their prospectus that's OK, according to ASIC.

Put simply, if a debenture fund is undercapitalised, there is nothing ASIC can or will do if it has been disclosed in the prospectus.

Another problem is if an investor rolls over a debenture the fund isn't required to issue a new prospectus, which creates an even bigger information vacuum that the investor is operating in.

These funds can also use the word deposit as there is no law that prohibits the use of that term. The upshot is Banksia was able to offer ''at call'' deposits as long as it mentioned in its literature that it was a non-bank.

There is at least one other non-bank that is in trouble. Its defaults are high, its fees are high and it has been involved in reckless lending. The concern is that valuers may not be able to get PI insurance to write valuations for non-bank lenders. If that day comes, where will that leave the investors?

After the collapse of Banksia ASIC went on a media blitz saying it had set up an internal taskforce to investigate the sector. It said it would brief Treasury in the next few weeks. The implication was that it would seek greater powers to monitor the sector.

While this is all well and good, the hope is that this time it makes some proper recommendations such as requiring these funds to adopt capital ratios that are mandatory and at levels banking institutions are forced to operate.

The shame of it is that ASIC launched a similar investigation after Westpoint collapsed. It found that the sector, which at the time was valued at $8 billion, was fraught with risk. ASIC released a consultation paper on proposals to improve disclosure to retail investors that were based on an ''if not, why not'' basis of reporting. That is, issuers would report to investors against certain principles and benchmarks, which they should follow or explain why they may not have followed those principles and benchmarks.

''The fundamental objective is to provide retail investors, and their advisers, with more investor information to make their decisions before they invest and then on an ongoing basis,'' ASIC's then chairman, Tony D'Aloisio, said.

The best that can be said about the ''if not, why not'' approach is that it is useless. The adage ''should have, could have, would have, but didn't'', applies to too many.

By not lobbying to change the law but leaving it in the hands of the entities to disclose in their prospectuses has meant the ball has rolled on for a further five years, taking a number of victims with it.

If the GFC taught us anything it is that the Australian banks survived because they were properly regulated. Those that are allowed to operate in the shadows through self-regulation have a higher propensity to buck the system. It has been the case with shadow broking and it is certainly the case with shadow banking.

John Price, the ASIC commissioner who is heading up the taskforce, said he was working closely with the receivers of Banksia. Days into the collapse, he said there was no evidence of wrongdoing. But time will tell.

In the meantime, investors are left fretting over how much they will get back. Others, who have invested in unlisted, unrated debentures will also be considering whether it is worth the risk being in such risky funds.

Let's hope that this time the government and ASIC act swiftly.

This story has been corrected to show that Ian Hankin was Banksia's former chairman.