Registered Financial Corporations that undertake ‘banking business’ are currently exempt from the need to be authorised as deposit-taking institutions (ADIs).
The Australian Prudential Regulation Authority (APRA) has 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).
The key objective of the proposed changes is to adequately distinguish between products offered by RFCs to retail investors and those offered by ADIs. For all practical purposes investments with RFCs are not able to be used for transactional banking activities.
At call products
APRA is concerned that the availability of ‘at-call’ products may provide the false impression that such products have the same level of security as ‘at-call’ products offered by ADIs, notwithstanding existing disclosure requirements.
“At call products” are defined as any debenture payable on demand or up to and including 30 days from when a retail investor makes an investment in a retail product.
APRA has confirmed that RFCs will not be able to not allow retail investors to redeem their funds at-call; instead, retail debenture offerings would be required to have a minimum maturity period of 31 days.
APRA will allow RFCs to release funds in cases of demonstrated exceptional circumstances that may lead to hardship.
Transition
An RFC will:
- from 1 July 2015, not be allowed to offer or accept new at-call accounts; and
- be allowed to continue to operate at-call accounts in existence at 30 June 2015 until 31 December 2015.
Term products (i.e. other than ‘at-call’)
All term products must comply with the new conditions by the earlier of the next rollover date of the product or 30 June 2016.
A term product that has a rollover date after 30 June 2016 will need to comply with the requirements by 30 June 2016. An RFC will not be required to cancel existing term debenture products that have a rollover date later than 30 June 2016. Rather, they must ensure that the holders of such products are notified of any modified conditions that will apply from 30 June 2016.
The changes will only apply to products offered to retail investors. They will not apply to products offered to wholesale investors.
Warning
An RFC must provide a prudential supervision warning to an investor to the effect that the RFC is not supervised by APRA under the Banking Act and that an investor will not have the right to priority of repayment that is conferred on depositors by section 13A of the Banking Act.
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.
