Regulation of deposit-taking by religious charitable development funds

APRA has finalised its position on the future operation of the exemption orders for religious charitable development funds (RCDFs) made under the Banking Act. Background.

The intention of APRA is to reduce the likelihood that an investor in a RCDF may confuse such an investment with an ADI deposit.

APRA remains of the view that unauthorised entities should not offer at-call deposit products or other transactional banking functionality that is typically associated with the product offerings of ADIs.

RCDF deposit terms
An account offered to a retail investor without a stated term will be required to have a minimum 31-day notice period prior to any withdrawal. Any account offered to a retail investor with a stated term, that is a term investment, would need to commence with a stated term of at least 31 days. On maturity of a term investment, an RCDF may, where the investor has requested repayment, repay the funds via cash, cheque or direct credit to an account at an ADI. Where the investor has not requested repayment, the funds would be rolled over into a new investment with a minimum term or notice period of 31 days.

Notwithstanding the minimum term and notice period, RCDFs would not be precluded from releasing funds from retail investments in cases of an investor’s exceptional circumstances that may lead to hardship.

RCDFs will need to develop their own procedures for determining genuine investor hardship. For example, funeral expenses would, in APRA’s view, be reasonable grounds for releasing funds immediately.

Conditions
These conditions do not relate to funding from wholesale investors or affiliates of the RCDF.

The use of the terms ‘deposit’ and ‘at-call’ and derivatives of these terms will not be permitted. RCDFs will not be able to use such terminology in relation to retail products or in marketing to retail investors.

RCDFs will be prohibited from offering BPAY payment functionality for products offered to retail investors. However, RCDFs will be able to continue to make or receive payments, including new retail investments, via BPAY. An RCDF will also be able to continue to use BPAY to transact between affiliates of the RCDF.

RCDFs will be required to provide a prudential warning to retail investors as follows:
‘{Insert name of Fund} (the Fund) is not prudentially supervised by the Australian Prudential Regulation Authority. Therefore, an investor in the Fund will not receive the benefit of the financial claims scheme (FCS) or the depositor protection provisions in the Banking Act 1959. Investments in the Fund are intended to be a means for investors to support the charitable purposes of the Fund.’

Transition
APRA proposes that RCDFs listed on the Exemption Order at 31 December 2016 will continue to operate under the new Exemption Order with effect from 1 January 2017, and will have up to twelve months to transition to the new conditions under the Exemption Order. That is, existing accounts of retail investors of an RCDF at 31 December 2016 could continue to operate, without change, until 1 January 2018, after which all such accounts would need to comply with the new conditions on the Exemption Order. All retail products offered to retail investors from 1 January 2017 onwards would need to comply with the new conditions on the Exemption Order immediately from that date.

APRA proposes that RCDFs listed on the Exemption Order at 31 December 2016 will be allowed to continue to receive an exemption from the need to be authorised by APRA as an ADI should they wish to continue to conduct banking business, provided they meet the new conditions that will take effect from 1 January 2017. There will be no exemption for RCDFs or individual accounts should they not be compliant with the new requirements.

Other religious and charitable entities that wish to accept funds from retail investors but do not wish to comply with the new conditions of the Exemption Order or seek authorisation as an ADI will have the options of registering as a registered financial corporation or seeking to operate a Managed Investment Scheme.

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