The Australian Prudential Regulation Authority (APRA) today released its response to submissions on APRA’s proposed changes to the Exemption Order under the Banking Act 1959 that applies to Registered Financial Corporations (RFCs).
Under the current Exemption Order, RFCs that undertake ‘banking business’ as defined in the Banking Act are exempt from the need to be authorised as deposit-taking institutions by APRA.
In April 2013, APRA began consulting on proposed changes to the Exemption Order intended to assist retail investors to more easily distinguish between ‘bank-like’ products offered by RFCs with deposit products offered by authorised deposit-taking institutions (ADIs). These proposed changes include restrictions on the use of certain terms by RFCs, such as the words ‘deposit’ and ‘at-call’, and requiring all debenture offerings to have a minimum maturity of 31 days.
A total of 13 submissions were received in response to APRA’s proposed changes. After consideration of the responses received, APRA concluded that alternative approaches suggested in some submissions would not adequately distinguish between products offered by RFCs and those offered by ADIs – the key objective of the proposed changes. Consequently, APRA will modify the RFC Exemption Order to largely reflect the proposed changes announced in April 2013.
APRA will provide a transition period to allow those RFCs that offer retail debenture products time to comply with the new requirements. The requirement for a minimum maturity of 31 days for new retail debenture products will take effect from 1 July 2015. For existing retail debenture products in existence at 30 June 2015 that do not meet this requirement, RFCs will be able to continue to operate these products without change until 31 December 2015.
RFCs that raise funds from wholesale sources are unaffected by these changes.
APRA will also require the prudential supervision warning to be updated by 1 January 2016 to include a statement that RFC products are not covered by the Financial Claims Scheme (FCS), which applies only to deposits held in protected accounts of ADIs.
The initial consultation in April 2013 also proposed changes to the Exemption Order for Religious Charitable Development Funds (RCDFs). This consultation will be addressed separately.
The response paper released today is located on APRA’s website.