New regulations governing margin finance companies were expected to reduce the number of firms able to offer the service by more than a third to less than 100, a senior government source said. Following four months of study by a working group headed by Deputy Secretary for Financial Services Rebecca Lai Ko Wing-yee and other regulators, the government is due to release a consultation paper on the new regulations today. There will be a two-month consultation period starting today, with the final bill to be presented to the Legislative Council in September or October. Under existing regulations, margin finance companies only need to obtain a money-lending licence to operate legally. That means neither the Securities and Futures Commission (SFC) nor any other financial regulators have any power over them. The collapse of the CA Pacific in January was largely attributed to three problem loans made by its margin finance company, highlighting the need for tightened regulation in this area. The source said the paper would propose forcing margin finance companies to apply for a licence from the SFC. 'The SFC will check applicants and those who fail to meet the new capital and other finance requirements will have to close down,' the source said. A Government source said that of the 130 existing margin finance companies, less than 100 would qualify for a licence. Under the proposed new regulations margin finance companies would be compelled to have a minimum initial capital of $10 million, double the requirement of $5 million for stockbrokers. It would also suggest that margin finance companies have 5 per cent liquid capital to back up their lending, in line with financial resource rules for brokers. 'The 5 per cent liquid capital would provide a buffer to ensure margin finance companies can cover losses when some of their clients fail to repay their loans,' the source said. Another new requirement would be for all brokers to return shares to their clients within five working days after a client made such a request after repaying a margin loan, the source said. The new rules require the margin finance companies to report their financial situation and unpaid loans to the SFC and the stock exchange regularly. They also require brokers to clearly inform clients about their accounts and obtain their approval before using their shares as collateral to get financing.