Removal of restrictions on the use of the term ‘bank’

Treasury is consulting on the draft Treasury Laws Amendment (2017 Measures No. 8) Bill 2017 which amends the section 66 Banking Act restrictions on the use of the term ‘bank’.

If passed the Bill will amend the Banking Act 1959 to:

  • allow any authorised deposit-taking institution (“ADI”) to use the word ‘bank’ in relation to the ADI’s financial business (except in exceptional circumstances), replacing the $50 million threshold that Australian Prudential Regulation Authority (APRA) currently applies; and
  • remove review by the Administrative Appeals Tribunal of APRA decisions regarding the use of ‘bank’ and other restricted terms in section 66.

Provided that a financial entity has been granted an ADI authorisation by APRA, that entity will be entitled to use the term ‘bank’ should they so choose: all ADIs are prudentially supervised by APRA and deposits are covered by the Financial Claims Scheme guarantee. This will benefit credit unions and building societies.

Under the new section 66AA of the Banking Act, it will no longer be an offence for an ADI to assume or use the words ‘bank’, ‘banker’ or ‘banking’ in relation to the ADI’s financial business provided APRA has not issued a determination prohibiting the use of the term ‘bank’ by that person.

APRA will retain the ability to determine that some ADIs may not use the restricted terms. Therefore, APRA will continue to be able to restrict the use of the terms ‘bank’, ‘banker’ and ‘banking’ through providing an affected ADI with a written determination restricting that ADI from use of the terms.

Determinations made by APRA to restrict the use of these terms may apply to a single ADI or to a class or classes of ADI.

It is expected that APRA would use the power to prohibit certain ADIs which do not have the ordinary characteristics of banks from utilising the term ‘bank’ (for example, purchase payment facilities). This power may also be used to deny the use of the term where serious or unusual circumstances warrant APRA making this determination.

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